Internet Newsletter

From The 90 Day Yacht Club Guide to Ensenada

December 2005

Volume 3 , Number 12

 

 

A true traveler has no fixed plans and is not intent upon arrival®

 

 

 

 

 

 

 

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AN ARTICLE PUBLISHED IN THE OCTOBER 2005 SEA MAGAZINE ABOUT THE IMPACT OF THE TEMPORARY CHANGE IN THE 90 DAY YACHT CLUB LAW

HEAD: Going After the Golden State

SUBHEAD: SB1100 and its impacts on California boating: One year later

By Jack Innis

            On October 1, 2004, the state of California changed its tax laws to narrow a loophole that previously allowed purchasers of new or used yachts to avoid paying sales or use tax by taking delivery offshore and berthing their vessels in out-of-state waters for 90 days. Senate Bill 1100 (SB1100) extended the out-of-state period to 365 days, figuring that most boaters would not find it worthwhile to periodically visit and use their vessels in far-off places such as Mexico, Oregon, Washington or Canada.

            One year later, SB1100 is making economic ripples up and down the Pacific-- and Atlantic -- seaboards.

Tax-Law Changes

            Prior to SB1100 becoming active in October 2004, boaters wishing to avoid sales or use tax could do so by simply taking delivery offshore and berthing their boats outside California for 90 days. Marinas outside the state were more than happy to oblige California yachts, even if the stay was predictably short.

            Depending upon the worth of the yacht, the arrangement worked out well for some purchasers. For example, at 7.5 percent, the basic sales tax (some cities and counties charge up to 7.75 percent) on a $500,000 yacht would be $37,500. Fairly strong incentive, especially in terms of what those dollars could purchase when outfitting the boat. So many buyers would store and use the boat out of state for 90 days, then return to their homeports in California and find ways to spend the taxes saved.

            SB1100 was enacted ostensibly to make it less convenient to skirt the sales tax. While this approach may have made sense in the state treasurer’s office, it was greeted with skepticism by those in the know along the waterfront.

            Before SB1100 took effect, most yachting industry professionals predicted that California would lose more revenue (due to lost sales) than it gained in collecting extra taxes. Many industry professionals felt that buyers would take delivery offshore and keep their boats out of state for a year. Not only would the state lose out on the sales tax, but also on the income stream generated by having the yachts outfitted, upgraded and remodeled elsewhere.

            But if this were the case, tangible signs should exist one year later that California boats are berthing in Mexico, Oregon, Washington and Canada for a year.

            After placing telephone calls up and down the Pacific Coast to marinas and boat yards, however, no “smoking gun” was found to indicate SB1100 is working as industry professionals believed it would.

Canadian Harbors No Haven

            Lori Jacinto, longtime property manager for Vancouver’s Maritime Market and Marina, sees very few California yachts holed up in her marina or boat yard for tax purposes, and believes the same holds true for other Canadian West Coast marinas. Part of the allure of keeping a boat out of state to avoid taxes is diminished if the out-of-state harbor is no haven.

            “I have heard of people buying boats from the state and bringing them up here to avoid taxes, but the number of boats is few,” Jacinto said. The problem is that California buyers may trigger Canadian tax laws by berthing in Canada for a year.

            “Last summer, there were police coming down to the marina, looking for boats specifically from California,” she said. “This year, we haven’t had any. I would say that means they are not as concerned about finding boaters that are trying to avoid California and Canada taxes.”

            Rich Hutton, dockmaster for Shelter Island Marina and Boatyard, Richmond, British Columbia, echoes Jacinto’s comments. Shelter Island Marina accepts boats to 100 feet. “I only see a few California-based yachts per year, and that number seems to be holding steady year after year. I don’t see how they could take much advantage of a tax break in Canada. We have a six-month boat yard-work visa, then they have to leave.”

            Washington and Oregon do not seem to be picking up the slack. “The 50-footers and above most frequently come to the state of Washington from California, but not for any tax break,” said Joe Weibler of Elliott Bay Marina in Seattle. Elliott Bay accepts boats to 65 feet. “If you stay here long enough to take advantage of a tax break from California, you’re going to get taxed by Washington,” he said. “Wherever you put your boat in the Pacific Northwest, the taxman is sure to catch you.”

Bienvenidos a Mexico?

            Well if the boats are not moving north, surely they’re headed south of the border. Right? Not according to the co-owner of Baja Naval, a highly esteemed marina and boat yard in Ensenada, Baja California, Mexico, about 60 miles south of San Diego.

            “Yes, SB1100 has hurt our marina business,” said Tomas Fernandez. “Since the tax law in California changed, there is more space available at the Ensenada marinas. As a boat yard, things have not really changed, although right now we’re in the slow season because people want to have their boats in the water. But, yes, we’ve seen a dropoff in our marina. Call any marina in Ensenada right now and you’re probably going to get a space.”

            Fernandez believes the dropoff is primarily due to SB1100, but wonders whether boat purchases in California have slowed down. If not, then strong anecdotal evidence supports the state’s contention that the changes in the boat tax law are working as planned. 

Smoking Gun Found

            One highly respected California yacht broker with offices on the Eastern Seaboard believes Fernandez hit the nail on the head.

            “I think there’s no question that it’s affected our business overall,” said the 25-year Orange County-based broker, who asked not to be named. “It’s been adverse to the industry in general, from the brokers to the shipyards. Talk to lenders and they’ll tell you the same thing. In my business and the industry in general, people are not even looking to buy boats in California anymore. They’re going to the East Coast and buying.”

            The well-respected broker recently sold a 90-footer and a 108-footer from his East Coast sales office. Neither buyer even bothered to look in California. His one exception was an 80-footer sold in Newport Beach to a client with a vacation home in Puerto Vallarta, Mexico, where the boat will be permanently homeported.

            “If you ask all the big brokers with offices on both seaboards, they’ll say the same thing,” he said. “The state is losing revenue, not gaining revenue.”

Dollars, Yachts Leaving California

            By focusing on the national picture, the broker believes he is able to show just how California is losing big money by collecting sales tax on a few more boats.

            “In California, we’ve seen boats still selling up to the $300,000 price range. People are just paying the sales tax. The $300,000 to $1.5 million buyers are thinking twice or three times, and then deciding not to sell and keep what they have. 

            “The $1.5 million and greater buyers are buying out of state and keeping their boat out of state. It hurts everybody: restaurants, hotels, dock services, maintenance services, boat suppliers and so on. It’s the trickle-down effect, and there’s no question it’s hurting yacht sales and support.”

            Most industry experts agree that annual expenses to keep a large yacht -- such as fuel, crew, maintenance and supplies -- equate to roughly 10 percent of the yacht’s initial purchase price. Thus, the owner of a $3 million yacht would expect to pay about $300,000 per year to keep his or her dream castle afloat.

            In addition to the anticipated 10 percent per year in upkeep, most yacht buyers spend an additional 10 percent of the vessel’s value in initial outfitting. So in trying to tighten up collections on a one-time, 7.5 percent sales tax, the state appears to be losing millions of dollars in lost sales and millions more in taxable transactions downstream of these yachts.

            Unfortunately, nobody rings a big bell to alert Sacramento every time a buyer decides to buy a multimillion-dollar yacht out of state due to sales tax.

Florida’s Juicy Deal

            “Those are dollars that don’t stay in California,” the broker said. “If (lawmakers) really want to look at this objectively, they’d compare the meager gains in sales tax and the massive loss in income to yachting industry people. They’d find the loss outweighs the gains they’ve experienced in sales tax.”

            The yacht broker is not alone in hoping that the state will allow SB1100 to sail off into the sunset when it expires in 2006. For comparison’s sake, Florida’s yachting industry thrives. Buyers are allowed to keep recently purchased boats in the boat yards for extended periods of time -- after taking delivery but before the wheels of time begin turning (with taxable consequences). When boats do leave the yard, their owners are allowed to cruise out of state for 90 days and return without owing sales tax.

            But, Florida’s situation is different too; with the tax-friendly Bahamas and the Caribbean not too far away, the state might have more to lose by toughening the tax laws.

Tarnish on Gold?

            Some California-based brokers believe the tax developments here are a bleed-out of sorts.

            “Welcome to the People’s Republic of California -- that’s all I can tell you,” said Bill Roberts of San Diego’s Shelter Island Boatyard (not affiliated with Shelter Island Marina and Boatyard in British Columbia). “I just had one of my oldest customers buy a different boat -- a half-million-dollar Grand Banks somewhere up north. He stopped in for a few days to have a little bit of work done, but said he was taking it down to Ensenada for a year.

            “It’s one of those things where the lawmakers sit around and pass a bill that’s going to do great things for the state, but it hasn’t. People are staying out of the state for a year. SB1100 hasn’t done anything for the state. We’re not going to go out of business, but it’s another nail in the coffin. Everything else the state does is along the same lines.”

            Change is difficult, and most likely, the authors of SB1100 knew they’d make boaters and those in the yachting industry unhappy when they wrote the bill in 2004. The jury is still out on the true economic impact of SB1100, but with California consistently ranking among the top three states with the greatest number of registered boats, it appears that the Golden State will continue to be seen as a boater-friendly venue.

(c) Sea Magazine, 2005

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Published with the kind permission of the publisher of Sea Magazine. 

THANK YOU!

I encourage you to visit the Sea Magazine website at http://www.goboatingamerica.com/sea/ monthly for new boating news and also to subscribe to their fine publications while you visit.  

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Read our article about the similar effects of the ill-conceived Luxury Tax  levied on consumers in the last decade. A buying boycott ensued, much as we are seeing now in the California yacht industry. You will find the below entitled article in our March 2005 archived Newsletter.

THE LUXURY TAX ON YACHTS IN THE 1990’S
Will History Repeat the Results of the Dissolute Intent of that Fiasco?

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A RECENT STROLL THROUGH BAJA NAVAL  AT LUNCH

Click on these photos and the following thumbnail photos on this page

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THE RETURN OF THE 90 DAY YACHT CLUB NOW ONLY 6 MONTHS AND A FEW DAYS AWAY!

After this November's futile and failed special election called by the Governator, Arnold held a news conference in which he seemed to abdicate his role as a Republican governor and seemed more inclined to move his views toward those of the Democrats in charge of the California State Legislature. He vowed to work with the Democratic leaders more cooperatively in the future, a bad sign for those looking forward to the 90 Day Yacht Clubs return July 1st, 2006. If you are interested in saving the sales tax on your next yacht purchase and are waiting for that date to arrive before you purchase your next yacht, then you should become proactive by contacting your senate and assembly representatives about your interest in the return of the 90 Day Yacht Club. Redistricting was voted down, so you will probably be stuck with those legislators through their term limits. Now is a good time to start a dialogue and discussion with those legislators, your yacht club, and peer group about the law reverting back to 90 days and not having the California Legislature continue the current temporary statute period of one year for the time deemed necessary to save the sales tax on your next yacht purchase. Now is the time to get involved in the process, as July 1st, 2006 is only now 6 months and the remainder of December away! Send your legislators a Christmas card with a letter stating your views on the subject and encourage all you know in your yacht clubs and yachting circles to do the same. Click on the below link to find the contact information for the senate and assembly persons elected in your district.

http://www.legislature.ca.gov/legislators_and_districts/legislators_and_districts.html

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TWO FOR ONE FISH TACOS AT OUR FAVORITE ENSENADA FISH TACO SHOP ON TUESDAYS

           Here in Ensenada it is a Tuesday in November and we as a group in the marina always have a tough decision to make. Will it be 3 for 2 burgers at Q’Burger (see our October Newsletter article about this fine eating establishment) or 2 for 1 fish and shrimp tacos at Tacos Mi Ranchito El Fenix? Since Q’ Burgers offers the 3 for 2 deal on both Tuesdays and Wednesdays, we usually opt for fish tacos on Tuesdays. Browsing and editing the below photos for this newsletter made my choice easy for today (my mouths watering as I write), as after I finish this article I am headed for the festive and friendly Fenix fish shop. These are by far the crispiest and most fresh tacos we have found in Ensenada. The fish and shrimp you will eat slept in the sea the night before! See photo 9d for the pricing comparisons between Tuesdays and the rest of the week’s days. Fish tacos are regularly 80 cents and are roughly 40 cents on Tuesdays, while shrimp tacos go from 1.05$ to roughly 80 cents. Sodas are the same price, 80 cents, and bottled cold water is roughly half price at 40 cents. That’s at today’s exchange rate of 11 pesos to the dollar.

You will find Tacos Mi Ranchito El Fenix one block west of the Our Lady of Guadalupe Church at the corner of Ave Espinoza and Calle Sexta (6th street). Street minstrels are usually entertaining the crowd, for a few pesos or a taco. It will be crowded on Tuesdays at lunchtime but at 1 pm or so, as the crowd filters back to work, the place quiets down. We also like this place for the fact that is has a bar and a few bar stools. On the side of the restaurant there is an area with tables and chairs. Most taco stands in Ensenada are a stand next to the cart type serving environment. Your taco is accompanied by bowls arranged on the counter; the selections include limes, peppers, white taco sauce, hot green avocado taco sauce and various other condiments including a collection of red salsas and vegi delights including radishes, shredded cabbage and a chopped cilantro, onion and tomato mix. Tipping is suggested because the ladies you see slaving over the hot oil are there for 14 hours a day sometimes 7 days a week. Time to shut down the computer and take the drive to downtown Ensenada and Tacos Mi Ranchito El Fenix for a bountiful fish and shrimp taco lunch!

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SEPMPRA LNG TERMINAL CONSTRUCTION UPDATE

           After you pass El Mirador heading north to the border from Ensenada and as you are going down the hill to Bajamar you will notice a new overpass that leads you onto a dirt road that crests the hill on your left and disappears over the hill to the coastline below. As I previously passed this remote location by sea this was the area I liked the most traveling south as you were beginning to enjoy the undeveloped seaside hills, arroyos and panoramas, which are typical of the Pacific coast of the Baja from Ensenada south. No mas, senor, as this area is being ripped up by a major development that will render the area a toxic and dangerous area due to the greed of Sempra and its business partners. A $1 billion dollar project lurks below the shroud of hills, hiding a 74 acre development complete with two 17 story tanks (each containing more steel than the Eiffel Tower), tabbed as the Energia Costa Azul project. See our archived May 2005 Newsletter Article about how this project got started and an explanation of what LNG is and its possible danger to you and your family visiting Ensenada and the local environment.

           The major concern initially, aside from the future danger of the volatile LNG itself, is the threat to safe navigation around the point known as Punta Salsipuedes. See the below revised chart from our books that illustrates the new LNG terminal dock planned and its effect on the previously safe waypoints used many times by mariners rounding the point. A breakwater is planned to extend about 3 football fields away from the shoreline. It will be constructed of caissons built in Ensenada and towed by sea to the site. These navigation hazards will then be sunk and then filled with concrete. Currently at the Costa Azul site (over the hill from the passing highway conveniently so none can view the carnage) huge mounds of crushed rock and concrete are being piled up to form a jetty that will protect and support the piers that will dock new LNG tankers every 3 to 4 days laden with their cargo shipped from other parts of the world where the raw materials to make LNG are mined. Entities in Indonesia and Russia will be the main suppliers of the raw fuel.

           Setting the caissons in place will not happen until the middle of next year, but in view of the projected confusion caused by vessels attending to the terminal construction and other potential navigation hazards now unforeseen, such as armed craft to protect the site from terrorism, a wide birth is suggested as you navigate these waters. Yes I said terrorism, as one of the raging environmental disputes by those opposing the terminal is that a group of terrorists may strike the site endangering those living in the 20 mile circular “safe zone” prescribed by sober and well educated LNG plant planners. The fancy development of Bajamar is a neighbor and has opposed this LNG plant from the inception of the plan. Just around the point south a new huge housing project is planned that in the next few weeks will start taking bids and deposits for domiciles that start at $495,000 in the bidding process.

           The LNG arriving at Costa Azul by tanker will be kept in liquid form, cooled to below 260 degrees F so that it shrinks to 1/600th of the gas volume making it easier to transport and store. A cryogenic pipeline will carry the LNG from the ships to the storage tanks, built like huge thermos bottles with a 36-inch walls of concrete designed to blanket and keep cool the extremely cold liquid within. An adjacent plant not yet under construction will then convert the LNG back to natural gas and then will transfer the gas into the pipeline that will carry the gas to the west coast storage tanks and legions of fuel hungry west coast residents. The site will ship 1 billion feet a day into the pipeline network in existence in the states of California, Arizona, Nevada, Oregon and Washington.  

           Choosing Mexico appears to have worked out in Sempra’s favor in getting its LNG receiving terminal constructed. Liquefied natural gas was an unknown quantity to both Sempra and Mexico until a few years ago. But Mexican federal officials, who have encouraged the terminals construction, quickly issued permits for the project. Interestingly, it is the federal government that will only benefit financially from this project. Ensenada’s Mayor, who supported the project 14 miles northwest of Ensenada during his election campaign, has become one of its fiercest critics since taking office. His strongest criticism is the $7 million dollar trust promised by Sempra for charitable and municipal projects in Ensenada. These promised projects have not materialized, and this is a big bone of contention in Ensenada as to just what does the city have to gain, while the money goes to the federal government of Mexico during the terminals operation and Ensenada gets nothing but bad press about the danger of the terminal and its existence so close to Ensenada? Meanwhile, a parallel and competing LNG terminal which will be built at the beautiful remote location of the Coronados Islands by Chevron also promised a trust of city improvement and has already built a $1 million elementary school in the impoverished El Sauzal neighborhood 3 kilometers northwest of Ensenada. “Sempra is not a good public citizen,” the Mayor of Ensenada said recently.

           As the southern gray whale migration begins in late December, we wonder how this will affect the navigation sensors of those magnificent mammals as they trend to their breeding grounds in lagoons down the coast of the Baja. They arrive from Alaska within days and even hours of giving birth to the new whale pups, any deviation or confusion to the course they have taken for generations may affect this reproduction process detrimentally. They also take the shortest point-to-point routes as we do by sea in our floating craft, and really don’t need this interruption of their routine transition south and later back north to Alaska. See our archived December 2003 and March 2004 Newsletter articles about the migration of the gray whale.

          Say tuned to future developments on this dynamic and unfolding addition to the panorama we view here south of the border down Mexico way… The below chart depicts the effects of this new future LNG container ship dock on the current course to Ensenada presented in our most up to date printing of The 90 Day Yacht Club Guide to Ensenada.

*The below chart was revised 12-12-2005 as I drove by this area and more nursery fish pens have been located inside the navigation course line.  This is a raging bait debate locally as the theory is that these areas of concentrated fish farming are sucking up all the nutrients in the Ensenada inshore fishery environment, causing the last two years non-existent bait count as reported and experienced by the Ensenada harbor bait barges. I will write an expanded report in a future newsletter.

 

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TERRIBLE HERBST HOT WHEELS!

Below are photos of the 2005 Baja 1000 Off Road Race winner after the race. This superbly designed Terrible Herbst eight-year-old Class 1 buggy has won one of the most prodigious races whether on dirt or pavement worldwide two years in a row. This year’s 708.8-mile race course was extremely difficult and the victorious vehicle only averaged 46.92 miles per hour over the 15.06:19 time taken to finish the race. Notice the spare drive shaft strapped to the roof. See more photos of this winning buggy from last years race, before it started, all shiny and clean on our photo page. Also below are photos of the second Herbst entry, a trophy truck that did a complete roll and landed on its wheels to continue on to a fifth place overall finish. 

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Congratulations to the Terrible Herbst Team!!!

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Race Chase Chopper

 The most competitive Baja 1000 teams were "camped" out at the Coral Marina, as well as the best hi-def most hi-tech video chase choppers. No automatic focus on this joystick zoom lap console, controlling the bow mounted camera emplacement. The man in charge of the video recorder must adeptly adjust focus on this camera that will literally zoom to the perspiration on the gecko due to be run over by the oncoming crazed and fatigued off road trucker! And as you view the video on your hi-def mega TV, it would be as if you were viewing the recorded frames through a newly installed clear window. Note as the copter takes off how the camera pans from viewing the struts leaving the ground to a forward view as the chopper heads north to deliver its race film load to the funding studio.

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