Let’s do a bit of math about where the money goes when you buy a boat. For the sake of our conversation, let’s say that the seller has listed a boat for $100,000 with a broker. The broker commission I’ve been told is about 10%. So the seller is only going to see $90,000. In other words, if the seller wants $100,000, the boat must be listed for $111,111. Right, so that’s 10% that neither the buyer or seller are seeing but sits there between the two of us.
Here in California, the government, not content with taxing my income at the source, will want to tax all that is exchanged. Again for the sake of our conversation, let’s just round this up to 10%, which, where I live, is near damn what I get taxed. So now, my buying price is $110,000. Wait, there’s also a registration fee, which is about 1%. So the buying price is increased to $111,000.
But, that’s not all, again here in California, there’s property tax on boats, about 1% every year. Let’s assume that I want to keep the boat for 5 years. My buying price is now $116,000. In order to offer the seller $90,000 for the boat, I need to pay $116,000, which represents about a 30% uplift. This is large enough that it can make or break a deal. In fact, I am looking at a boat that I could afford if it weren’t for all this.
Let’s not forget that the income used to pay for this boat was taxed in the first place. Ok, if you can afford to buy a boat for $100,000, let’s assume that your combined tax rate is about 40% (state tax, IRS, house property tax, and all the other stuff plucked out of my paycheck). To have $116,000 for the boat, one needs pre-tax $193,333, which is more than twice the amount of money that the seller will see.
Do I sound a little frustrated?