What is “Use tax”??

…and how does one pay it??

According to the California Franchise Tax Board:  “You may owe use tax on purchases you made from out-of-state or Internet sellers.Use tax is similar to the sales tax paid on purchases you make in California. You may report use tax on your income tax return instead of filing a use tax return with the State Board of Equalization.”

In other words…

It’s sales tax, but if you pay after your point of sale they rename it to “use” since you’re now using the item purchased.  Sales and Use tax are monies owed to the state in which you reside after you make a purchase.  In California, we pay the Board of Equalization in Sacramento…sounds enchanting!

For me it applied to me paying tax on my boat after it became a documented vessel with the U.S. Coast Guard.  If I registered my boat with the CA DMV I would have been required to pay the “sales” tax right away.  BUT, since I had my boat documented it took about 4 months for the paperwork to go through (thanks government), which bought me some time to pay the now renamed “use tax”.

I struggle with these sorts of things, but I think I figured it out.  The tax (for me) needs to be paid to the state of California.  The rate is 8% of my purchase.  There is an option to do everything on line, but I got overwhelmed so I called to speak to a service rep and went from there.  Her name is Terry and she’s very helpful.  Here’s what I did;

  1.  go to http://www.boe.ca.gov.
  2. search for the “401 cuts” form, print it out and fill it out.
  3. make a copy of the bill of sale
  4. make a copy of the documentation certificate

I don’t have the full amount owed so I asked if I can set up a payment plan.   Since I took it upon myself to pay the tax (referred to as “voluntary”), I have a better chance at getting a payment plan.  If I waited until the state sent me a bill, then I may owe the full amount plus fees and interest immediately.

For the payment plan I went to the same website, searched for and printed form “boe126”.

I mailed all of the forms and copies along with a check for the amount proposed as an installment.

There are stipulations and guidelines that seem very confusing to me.  Like this one which is from the Board of Equalization regarding when to pay for a documented vessel; “The return must be filed and tax paid by whichever period expires earlier, 1.On or before the last day of the calendar month following the month in which a return form was mailed or presented to you by the BOE -or- 2 The last calendar day of the twelfth month following the month in which the vessel was purchased if you did not receive a return from the BOE.”

I figured if I just initiate the payment process when I get my Coast Guard documentation I’d be in good shape.  Keep your fingers crossed.


See you at sea!








3 thoughts on “What is “Use tax”??

  1. Things get interesting if you ever move your boat. Keeping that proof of payment is super important. Some states and locales have their own rules.

    We bought or liveaboard in Virginia which has 2% sales tax. She was in a Virginia boat yard for four months, then we moved her to Maryland last week with 5% sales/use tax. We are moving her to Florida in November with 5% sales tax. She’s USCG documented. Who do we pay sales/use tax to? Maryland. Beacause Maryland charges use tax if you are in their waters more than 90 days, despite having paid sales tax elsewhere. Virginia and Florida do not charge use tax if you paid sales tax elsewhere and have owned the boat at least 6 months.



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