Originally published in the Los Angeles Times, August 22, 2007
By Evan Halper
SACRAMENTO -- State university students, mass transit riders and the low-income elderly will all feel some pain from the budget the Legislature passed Tuesday. But for one select group, the spending plan could prove a financial boon: owners of yachts, planes or recreational vehicles.
They will once again be able to avoid paying sales tax if they keep those items out of the state for just 90 days after purchase. That's how the law worked before 2004, when lawmakers closed what most considered a loophole by requiring state residents to keep those pricey purchases out of the state for a year to receive a sales tax exemption.
The stiffer rules forced more yacht, plane and RV owners to pay their fair share, according to the nonpartisan Legislative Analyst's Office. The result: a $45-million boost in revenue for the state each year since 2004.
A book for yacht owners, "The 90 Day Yacht Club Guide to Ensenada," schools Californians on the art of avoiding sales tax by temporarily docking in Mexico.
A provision intended to keep the one-year requirement in place was removed from the budget last month at the insistence of Senate Republican Leader Dick Ackerman of Irvine, himself a yacht owner.
"It's a commitment we made to Dick Ackerman," said Assembly Speaker Fabian Nuñez (D-Los Angeles), who in 2004 fought to stiffen the tax exemption's eligibility rules during budget negotiations. "Hopefully they will make him president of the yacht club or something."
Ackerman said in an interview Tuesday that the stiffer rules were pushing yacht brokers and manufacturers out of the state. The boost in sales tax payments was the result of more Californians buying jet skis and smaller vessels, not yacht owners forgoing that long trip to Mexico, he said.
Gov. Arnold Schwarzenegger has worked with Democrats to keep the one-year requirement in place. It had been renewed each year since it was enacted -- until now.
"This was going to be an experiment," Ackerman said of the 2004 law -- one he believes has failed. Others say the sales tax break is an outright giveaway.
"Everybody recognized this as a scam," said Lenny Goldberg, executive director of the nonprofit California Tax Reform Assn. "People had even made a business out of this scam. And now the state is going to permit it again."
Times staff writers Michael Rothfeld and Nancy Vogel contributed to this report.
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