Almost eight years ago the state and federal governments repealed their taxes on luxury boats. As a result, the state economy has been boosted by nearly $3 billion dollars in growth, some industry members and state officials say.
Michael Keyworth, executive director of East Bay Economic Initiative a partnership between government and private business dedicated to promoting the marine industry in Rhode Island, said since the repeal of the state's 7 percent sales tax and the federal luxury tax -- 11 days apart from each other -- in 1993, the entire industry, including tourism and supporting business, has grown steadily, with 1999 estimates making it a $4.1 billion industry.
"The repeal of these taxes has helped the industry in more ways than we ever anticipated," he said. "When we originally campaigned we thought it would be a good thing for boat building in the state, but it's gone beyond that. The picture today is really rosy."
But a decade ago when the federal government first enacted its luxury tax -- charging a 10 percent tax on all boats valued over $100,000 -- and the state had its own 7 percent sales tax, the Rhode Island industry was hit hard.
"People at that time thought why not tax the rich, and all of a sudden people had a 17 percent additional cost when buying a boat," said Ken Kubic, vice president of the Rhode Island Marine Trade Association. "But what happened was a ripple effect -- people just stopped buying boats. By 1992, 50 percent of companies nationwide involved with the boating industry including accessories, sailmakers, and boat builders themselves had gone under, and the other 50 percent had laid-off a considerable number of workers."
In 1991, the state government tried to soften the blow to the boating industry by repealing its property tax for boats - which neighboring states did not do.
"The problem was no one was buying the boats, so therefore there were no boats to store," Kubic said.
But after the repeal of the state sales tax and the federal luxury tax in 1993, the Rhode Island Marine industry was placed in a class of its own -- with almost no taxes on boaters.
"That's where we get the slogan 'Rhode Islanders enjoy tax free boating,'" Kubic said. "You don't have a sales tax or the use tax that marina owners used to charge for slips. It's been a real benefit."
Now, not only do boaters come to Rhode Island to buy their boats, they keep them here too. According to Keyworth it's estimated that 46 percent of the state's boat slips are occupied by boats whose owners are from out of state.
"People that buy boats here and then want to bring them back to a state like New York, face paying something like an 8 percent tax," Kubic said. "As a result they keep it here in Rhode Island, use our mechanics to repair it, eat at our local restaurants, and so forth."
In addition, Kubic said it's estimated every new 40-foot boat sold in Rhode Island creates three new jobs. Sharon McNamee, administrator for the Rhode Island Marine Trade Association said the statistics are there to back it up. She said, in the first year after the repeal of the state sales tax and the federal luxury tax, employment in the boating industry jumped by more than 25 percent and continued to grow by at least 10 percent through 1997. Information for the years 1998 and 1999 is currently being calculated.
"Every year there has been significant growth in our industry," she said. "Ours is higher than the overall growth in the state. Everything just looks better since the taxes were repealed."
What's ironic, many in the industry agree, is that though the industry has the potential to keep growing, it instead has been stunted by its own growth.
"Right now we are limited by the amount of infrastructure we can create," Keyworth said. "If every slip in the state is full right now, you have to build more slips and there doesn't seem to be the regulatory support to do that."
In addition the industry has been plagued by a shortage of workers.
"There is still the potential for growth but everyone is backlogged and there are only so many employees that they can hire," Kubic said. "And as long as we can't get employees, everyone is still going to have a backlog."
But what the industry does have, Keyworth said, is security.
"We are the third largest industry in the state," he said. "We are in a unique position in that we have the smallest area with the greatest density of boat building. We are also unique in that Rhode Island has the security to outlast a recession type period."
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