New US Customs Ruling May Threaten Boat Builders And Owners

by Mike Godfrey, Tax-News.com, New York

21 January 2003

A new ruling from the US Customs Service may threaten the tax deduction of boat and yacht expenses for business entertainment. A newsletter from MarineLiens.com reports that the Customs Service is planning to define 'passenger' in such a way that boats used for business entertainment purposes would have to be registered under Coastal Trade Endorsement rules, requiring them to have licensed captains, and limiting such use to US-built boats.

According to MarineLiens, the United States Customs Service now interprets the definition of a “passenger” on a vessel being used for business or business entertainment purposes to mean any person onboard a boat while under way who is not directly involved in the operation, ownership, or navigation of the boat. Vessels carrying “passenger(s)” must be under the command of properly licensed operators.

This in turn means registration in the United States Documentation System with a “coastal trade endorsement,” allowing the carriage of passengers for hire with a licensed captain in command. Such registration is open only to US-built boats, and they must be of at least five net tons, meaning around 26' in length.

MarineLiens says it's doubtful if the Customs Service has the facilities to cope with the rush of applications such a ruling would generate, and is currently working with a maritime attorney in the United States who is investigating the ruling and is awaiting explanations from the US Coast Guard, US Customs Service, and the Internal Revenue Service.

If the proposed rules come into force, it would be a shattering blow for foreign boat builders, for countless Americans who use their boats for business purposes, and for a number of Caribbean ports of maritime registry who specialise in yachts and cruisers, such as the Cayman Islands.

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