Certain provisions of the California Constitution allow for vessel exemptions, either on a partial or full basis. Full exemptions include vessels having a low value, vessels considered business inventory (including those under construction), vessels of more than 50 tons burden engaged in the transportation of freight or passengers, and certain vessels with a historical value. In addition to these property tax exemptions, certain documented vessels (see Revenue and Taxation Code section 227) are granted the right to be assessed at 4 percent of their full cash value.
Other exemptions may also apply to vessels. For example, under certain conditions, a vessel may be eligible for the Homeowners' Exemption or the Disabled Veterans' Exemption. Also, a person on active duty in military service may declare the situs of his or her personal property to be his or her home state (personal property may be immune from taxation in the state where the individual is stationed on active duty).
- Market Value of $400 or Less
A vessel with a market value of $400 or less are free from taxation (see Revenue and Taxation Code section 228). This exemption only applies to vessels used or held for non-commercial purposes and does not apply to lifeboats or other vessels used in conjunction with the operation of vessels with a market value of more than $400. In determining the market value of a vessel, a vessel's value should include all equipment such as mode of power and furnishings that are normally required aboard the vessel to accomplish the functions for which the vessel is being used. This exemption can only be applied to one vessel owned, claimed, possessed, or controlled by an assessee on the lien date.
- County Low-Value Ordinance
As described above, vessels with a market value of $400 or less are exempt from taxation. Each county's board of supervisors, however, may set its own Low-Value Exemption (see section 155.20). A county board of supervisors may choose to exempt property with a full value so low that, if not exempt, the taxes would amount to less than the cost of assessing and collecting them. In any case, a county board of supervisors has no authority to exempt personal property with a full value of more than $10,000.
Business inventories (as described in Revenue and Taxation Code section 129 and Property Tax Rule 133) are eligible for exemption from taxation (see also section 219). Vessels intended for sale or lease in the ordinary course of business are considered to be business inventories. Vessels under construction, even those under a contract of sale, and the raw materials on hand not yet incorporated into a vessel are also included as business inventories. Business inventory also includes property held for lease or consignment by lessors, sublessors, and consignors.
Business inventory does not include property being used by its owner for any purpose not directly associated with the prospective sale or lease of that property. A vessel held for sale or
lease is not allowed the exemption if it has been, or is intended to be, used by the seller or lessor prior to or subsequent to its sale or lease.
The following link provides additional information on Vessels held for sale or lease and considered business inventory.
Vessels of more than 50 tons burden and engaged in the transportation of freight or passengers are exempt from property taxation (Article XIII, section 3, subdivision (l) of the California Constitution).
With respect to this exemption, “50 tons burden” shall mean “50 tons net burden” as registered in the United States Customs Office. Certificates of Documentation state the gross and net tonnage of a vessel. To qualify for the exemption, a vessel must be exclusively engaged in the transportation of freight or passengers or at least primarily so engaged. There is no proration of the exemption. Therefore, if a vessel qualifies, the exemption is allowed in its entirety. This applies even if the vessel is used 80 percent of the time in the exempt activity and 20 percent of the time in other activities, such as towing operations; incidental use for other purposes does not affect qualification for the exemption.
The following links provide additional information on exemption of vessels of more than 50 tons burden.
- Vessels Annotations
- Assessors' Handbook Section 576, Assessment of Vessels, (Chapter 6, Exemptions)
As of January 1, 2001, wooden vessels of historical significance, and all other personal property used in their operation, are exempt from taxation if all of the following conditions are satisfied (see Revenue and Taxation Code section 230):
- The owner and operator is a nonprofit organization that has qualified for exemption under either section 23701(d) of the Revenue and Taxation Code or under section 501(c)(3) of the Internal Revenue Code.
- No part of the net earnings of the owner benefits any private shareholder or individual.
- The vessel is used primarily as, or as a part of, a maritime museum that is regularly open to the public.
- Income from fundraising use and use for charter activities does not exceed 40 percent of operating revenues of the vessel, and all net earnings are used to further the exempt activity of the museum.
- To qualify for the exemption, the claimant is required to annually file by February 15 an affidavit furnished by the assessor.
For the purposes of this statute, “wooden vessels of historical significance” is defined as any wooden vessel that is a refurbished original, wooden inland waters vessel of 47 feet or larger, built in California during or prior to 1910, that continuously thereafter has remained in California waters, and that has been designated a California State Historical Landmark.
To apply for the Vessels of Historical Significance Exemption, a claim must be filed each year with the assessor of the county where the property is located. The claim form is available from the county assessor. To receive the full 100 percent exemption for property owned on the January 1 lien date, the claim must be filed by February 15.
Certain documented vessels are assessed at 4 percent of their full cash value, which amounts to a virtual exemption (see Revenue and Taxation Code section 227 and Property Tax Rule 151). A documented vessel, for California property tax purposes, is a vessel with a valid marine document nationally registered with the U.S. Coast Guard or one registered or licensed by the State of California through the DMV. Vessels qualifying for the reduced assessment are documented vessels that are engaged or employed exclusively in any of the following:
- In the taking and possession of fish or other living resource of the sea for commercial purposes.
- In instruction or research studies as an oceanographic vessel.
- In carrying or transporting seven or more people for hire for commercial passenger fishing purposes and holds a current certificate of inspection issued by the United States Coast Guard. A vessel shall not be deemed to be engaged or employed in activities other than the carrying or transporting of seven or more persons for hire for commercial passenger fishing purposes by reason of that vessel being used occasionally for dive, tour, or whale watching purposes. For purposes of this subdivision, “occasionally” means 15 percent or less of the total operating time logged for the immediately preceding assessment year.
To qualify for the 4 percent preferential assessment, the vessel need not be owned by the taxpayer, but only used for one of the qualifying purposes identified above (see section 227). If the vessel is leased out on the lien date and the lessee uses the vessel for the purposes set forth in this statute, the lessor or lessee should apply for the preferential assessment. Vessels documented out of state may also qualify for the 4 percent special assessment.
To apply for the for the 4 percent preferential assessment, a claim must be filed each year with the assessor of the county where the property is located. The claim form, BOE-576-E, Affidavit for 4 Percent Assessment of Certain Vessels,is available from the county assessor. To receive the full 100 percent exemption for property owned on the January 1 lien date, the claim must be filed by February 15. Certain documentation must be attached to the claim form.
Claim forms filed for vessels used as research vessels (qualifying under section 227, subdivision (b)) should include the following:
- The contract, statement, or agreement from the respective organization outlining the nature of the research and the time duration attached to the affidavit.
- A copy of the Certificate of Documentation that indicates the vessel's official classification as an oceanographic research vessel.
Claim forms filed for vessels used for carrying or transporting seven or more people for hire for commercial passenger fishing purposes (qualifying under section 227, subdivision (c)) should include a copy of either of the following:
- The Certificate of Inspection, Form CG3753, or
- Temporary Certificate of Inspection, Form CG854. The Certificate of Inspection for most passenger vessels is valid for a 5-year period, except for vessels carrying more than 12 passengers on international voyages, which require annual inspections.
The following links provide additional information on 4 percent assessment for qualifying documented vessels:
- Vessels Annotations
- Assessors' Handbook Section 576, Assessment of Vessels, (Chapter 4, Documented Vessels)
If a vessel is the owner's residence and also qualifies for the Documented Vessel Exemption (section 227), the vessel owner may only claim one of the exemptions. The nature of many fishing boats is such that they are commonly equipped with living quarters so the vessels may make extended cruises in search of their catch. A crew will live on the vessel while on the high seas, and there is nothing in the exemption statutes to imply that the owner or crew must leave the vessel while in port. The vessel, however, must be used as a full-time commercial fishing vessel to qualify for the Documented Vessel Exemption. If the use of the vessel as a residence interferes with the fishing activities, or if the vessel is primarily a residence and commercial fishing is only incidental, then the vessel is not “engaged or employed exclusively” for any of the specified activities. Thus, a vessel owner must elect and properly claim only one of these exemptions.
The Disabled Veterans' Exemption provides that the first $100,000 or $150,000 (as adjusted for a prescribed inflation factor) of a vessel's full value may be exempted from property taxation if the vessel is owned by disabled veteran, or the spouse, jointly or separately, or the unmarried surviving spouse. The higher exemption amount is afforded to a veteran whose household income does not exceed $40,000 (as adjusted annually for inflation) (see Revenue and Taxation Code section 205.5). To be eligible for the exemption, the veteran, or the veteran's unmarried surviving spouse, must occupy the vessel as his or her principal place of residence.
The Servicemembers Civil Relief Act of 2003 provides that a person on active duty in military service may declare the situs (the place where property is legally situated) of his or her personal property to be his or her home state or county. This declaration renders the personal property immune from taxation in the state where the individual is stationed on active duty. This act does not provide for an exemption from personal property taxation. Instead, it establishes tax situs of the property and thus establishes an exception to the general rule that personal property has its tax situs at the place it is located. The taxing agency with jurisdiction as the servicemember's domicile may tax the property if the laws so provide. This rule of tax situs is applicable whether the servicemember's domicile is another county of California or elsewhere within the United States.
If a servicemember on active duty in California who claims residency in another state has a vessel, the vessel is immune from property taxation in California. A servicemember who declares situs of his or her personal property to be located elsewhere must complete form BOE-261-D, Servicemembers Civil Relief Act Declaration. The declaration may be filed at any time with the county assessor of the county where the personal property is located without penalty or interest.
The following links provide additional information on vessels exemption under the Soldiers' and Sailors' Civil Relief Act of 1940.
- Assessors' Handbook Section 576, Assessment of Vessels, (Chapter 6, Exemptions)