A Hole in Loophole-Closing

Thank goodness for the diligence of Assembly Republicans. If not for them, wealthy Californians might have completely lost the sales tax loophole they enjoy when buying yachts costing $400,000 and up.

The blame for delaying passage of the state budget by four weeks clearly doesn’t belong to one party. Though Republicans held up an Assembly vote on the budget for five hours Wednesday with the yacht-tax brouhaha, majority Democrats have done more than their share to throw sticks between the spokes of state government. In the end, Democrats’ reflexive support for unions, such as those of prison guards and teachers, meant that even the most reasonable spending cuts had to be purged from the budget. The yacht-tax fight, however, perfectly encapsulates the way our legislative chambers sometimes resemble a theater of the absurd.

Democrats have sought to close the yacht-tax loophole all year, positioning it as welfare for the rich. Republicans branded the effort a bid to increase taxes.

Under the exemption, buyers of high-end yachts escaped California sales taxes by buying them outside the state -- usually arranging the sale here and taking possession at least three miles off California’s shore -- and then docking them in other states or Mexico for more than 90 days. After that, they could return the boats to California tax-free.

Republicans balked at extending from 90 days to one year the time a yacht purchaser would have to keep a vessel out of state in order to escape the sales tax. They claimed the change would hurt California’s boating industry. Forcing the governor’s office into last-minute negotiations, they got a major loophole put into the loophole-closing. Yes, the yacht buyers would have to moor the boats outside of California for a full year, as the Democrats demanded, but they could bring them into the state for maintenance. Look for a great increase in maintenance work and a whole lot of test-sailing trips to make sure everything’s shipshape, especially on brand-new boats.

The battle to preserve the yacht-tax break for the rich shows how post-Proposition 13, anti-tax mania has skewed the state’s priorities. It says to millions of less-fortunate Californians: “Let them eat cake.” That’s about all they get that’s tax-free.