Marine Center’s foreign trade zone.
Congress rarely passes legislation that specifically favors the owners of large yachts – and, by extension, the marine industry that supports them. But that rarity unfolded last summer when a new federal law made it easier for owners of the biggest yachts to register them as U.S. vessels and operate them under the U.S. flag.
“Sometimes when you say the word ‘yacht’ in Washington, you watch Congressional leaders’ eyes roll back in their head, and they say, ‘Oh, I can’t get behind that,’” says Kitty McGowan, president of the U.S. Superyacht Association.
But on August 13, President Trump signed a bill into law that handed a hard-fought lobbying victory to McGowan and USSA. The Fort Lauderdale-based advocacy group, formed in 2003, represents owners of large yachts in 26 states and 17 countries and had been trying to get the new U.S. yacht registration law enacted for more than 10 years. “This year,” McGowan says, “we were able to push on the right doors with the right people.”
The law making it easier to register large yachts as U.S. vessels is an improbable amendment to the National Defense Authorization Act, or NDAA, a funding mechanism for national defense that the president enacted in August.
Domestic yacht registration, McGowan says, is linked to national defense: “Technically, if a boat is flagged U.S., the U.S. government in times of war or civil unrest could essentially take ownership of that vessel to use it for national defense. That is how we were able to tie into the NDAA.”
Prior to enactment of the new law, yachts over 300 gross tons generally were ineligible for U.S. registration unless they met commercial vessel standards, which practically eliminate an owner’s ability to design comfy cabins and decks. The new law reversed an outdated one enacted in 1920, when the largest recreational boats were much smaller than they are today.
USSA is now working with the Coast Guard to develop standards for large yachts, which could take effect by 2020. “We have the only flag registry without a large yacht code, and it just became more and more important to a lot of very patriotic Americans to be able to register their vessels in the U.S,” McGowan says. “There are some benefits to that.”
Nevertheless, registering an American-owned yacht in a foreign country is a common practice to minimize tax liability.
“You can be an American owner, but if you register a yacht in the Cayman Islands or the Marshall Islands or somewhere else, then you don’t have to pay U.S. taxes on the yacht,” says Kristen Cavallini-Soothill, who runs a yacht crew training school in Fort Lauderdale called American Yacht Institute.
Owners of foreign-flagged yachts also have the flexibility to hire foreign crew or American crew, or a combination. However, only American crew can work on U.S.-flagged yachts. “You can hire anybody in the world” to work on a yacht registered in a foreign jurisdiction, Cavallini-Soothill says. “You don’t just have to have American crew.”
Whether domestic or foreign, registration rules for yachts also require a certain quantity and quality of crew, and these manning requirements vary by flag and vessel size. “It’s very complicated,” says Tracy Schwegman, who runs Professional Yachtmaster Training USA in Fort Lauderdale with her husband. “At the end of the day, it comes down to money.”
Beyond money, flying a foreign flag can provide a sense of security for American yacht owners cruising overseas. “While we’re all patriotic, sometimes putting an American flag on your back and walking around Europe wouldn’t be a smart thing,” says Phil Purcell, president and CEO of the Marine Industries Association of South Florida.
“If it’s a Cayman Islands flag or a Marshall Islands flag or a British flag in general, it doesn’t mean the boat is owned by a Brit or by an American. It just means it’s a foreign entity,” Purcell says. “The foreign flag gives you some anonymity that doesn’t exist with an American flag … When you have an American flag, it has to be an American owner. Equally important, you have to have transparency into the ownership of that vessel.”
Domestic registration may mean bigger tax bills than flying a foreign flag, but it’s also more convenient. Owners of U.S.-flagged yachts are free to operate them in U.S. waters as recreational vessels or commercial charters. But domestic charter operations are prohibited for foreign-flagged yachts.
Owners of foreign-flagged yachts also need a permit to use them for recreational cruising in U.S. waters. “They get a cruising permit for a year. Then they have to leave and come back into the U.S., which they normally do,” Purcell says. “They go to the Bahamas or some other foreign port, then they can reapply for a cruising permit, whereas a U.S. vessel can go anywhere it wants in U.S. waters.”
In a publication called “Recreational Boating Statistics 2017,” the Coast Guard reported that American boat owners had registered 11 million vessels, including just 11,295 over 65 feet long.
The Coast Guard also reported that Florida was home to 7.7 percent of all U.S.-registered vessels, or 853,976.
Fort Lauderdale’s vast marine industry, of course, serves yacht owners regardless of what flag they fly. Less visible than yachts themselves, the USSA’s McGowan says, is “the significant economic impact of yachting, especially the large yacht industry; the number of jobs it produces and the trickle-down effect of having a lot of them in your hometown.”
It’s a good deal for Fort Lauderdale, Purcell says. “We benefit by foreign-flag boats coming here. There’s no negative to that. It’s great from an American job perspective,” he says, citing yacht-crew employment growth as the largest yachts get even larger.
“The bigger the boat, the more crew you need,” he says. “Two decades ago, a 100-foot boat would have been called a ‘superyacht’ and anything over 130 feet was considered commercial, not recreational. But recreational boats now are being built over 400 feet.”
In the Zone
Bringing big boats to Fort Lauderdale from abroad can cost a small fortune in import tax. But some owners now minimize their exposure to Customs duty by bringing yachts to a so-called “foreign trade zone” that opened last year at the city’s largest shipyard, Lauderdale Marine Center, the 65-acre operation plainly visible from the I-95 bridge over the New River.
U.S. Customs and Border Protection charges duty equal to 1.5 percent of the value of imported products – which can easily mean $1 million or more for a larger yacht, not including state sales tax if it is sold to an American.
International boat shows are temporary duty-free platforms for dealers to display foreign-registered yachts and invite potential U.S. buyers to come aboard for a close look without triggering the 1.5 percent duty. “Dealers post what’s called a boat-show bond and go to a boat show, and during the show, U.S. citizens are able get aboard the boat,” says Phil Purcell, the executive of the Marine Industries Association of South Florida, a trade group that owns the Fort Lauderdale International Boat Show.
Now yachts registered abroad can be displayed duty-free any time of year in the foreign trade zone at Lauderdale Marine Center, a one-stop marine shopping center with dozens of shipyard companies that repair and refit boats, plus support firms providing everything from upholstery to artwork for vessels.
“That’s a huge advantage from a sales perspective because if the boat sells here, it’s also most likely to be refit and repaired here,” Purcell says. The foreign trade zone at Lauderdale Marine Center is “the first ever in the United States for the recreational marine industry. It was designed to give our community, our region, a leg-up in attracting boats here for refit and repair.”
Among the local beneficiaries of the foreign trade zone is Steel Marine Towing, one of approximately 60 on-site tenants of Lauderdale Marine Center.
Owner Jim Steel says the zone “definitely had been a positive” for his towing company, which often helps foreign-flag yachts to the zone for display or repair. “The New River is a very narrow, winding, current-filled river. Lots of bridges, lots of hazards, some shallow spots,” Steel says. “It takes a lot of local knowledge to get up and down the river – especially with a large boat.”
Bigger boats appear most likely to dock in the foreign trade zone at Lauderdale Marine Center because the financial benefits are equally large. “Those bigger boats are the ones that are going to use the foreign trade zone,” says Doug West, president of Lauderdale Marine Center. “It will change our customer base. That was our intent. We’ve been targeting slightly larger vessels than we’ve had here historically.”
West says his company is the largest of its kind in the United States as measured by dockage and storage capacity. Lauderdale Marine Center, also known as LMC, has 227 in-water and out-of-water berths. The company’s entire 65-acre riverfront complex is designated as a foreign trade zone, and LMC can activate zone space for boats as needed. In a slow time of the year, LMC might only designate two berths. But as enquiries come in, they can expand that.
Signage and security distinguish activated zone berths from the others. Guards control access to boats in activated zone spaces. LMC also has gated access and other layers of security, and the foreign trade zone there is supervised by U.S. Customs and Border Control.
In addition to supporting yacht brokerage, the foreign trade zone also supports marine repair and refit companies at LMC by allowing them to import foreign-made parts without paying import duty. “As long as the vessel is foreign-flagged, and they eventually depart the U.S., they don’t pay import duty. The parts become part of the vessel,” West says. For example, “we’ve had quite a few boat builders that brought in inventory … so they wouldn’t have to pay the import duty as they were marketing the boat.”
That type of zone-based production work appears likely to increase over time at Lauderdale Marine Center, West says. “We’ve definitely seen an impact in 2018,” he says. “We think it’s going to grow over time and will have a significant impact on our business five years down the road.”
The foreign trade zone at Lauderdale Marine Center (number 241A on a federal list) is technically a sub-zone of the foreign trade zone at city-owned Fort Lauderdale Executive Airport (number 241). Another foreign trade zone in town (number 25) covers 388 acres concentrated at county-owned Port Everglades. But operations at the port are almost exclusively commercial, while Lauderdale Marine Center is a leader in recreational boating, an industry that never had the benefit of a foreign trade zone until last year.
Fort Lauderdale’s marine industry also offers a Florida sales tax break for costly refit and repair work on boats. The state sales tax is capped at $60,000 for such work when the bill tops $1 million. But other states in the Southeast, including Georgia and South Carolina, have started doing the same thing to attract that big-ticket business.
So, the foreign trade zone at Lauderdale Marine Center provides an additional tax incentive for owners to bring their yachts to Fort Lauderdale for servicing. The zone also has shined a spotlight on the multi-million-dollar capital improvements unfolding at Lauderdale Marine Center as management tilts the facility’s focus toward bigger boats.
Earlier this year, LMC was finishing a major marina reconfiguration to add about 30 slips for boats over 80 feet “because we have a lot of small-boat slips and not enough big-boat slips to satisfy the demand. We were turning boats away,” West says. Last year, LMC installed a boat lift with a capacity of 485 tons, up sharply from the old 300-ton limit, and opened its Riverbend section with about 100 in-water and out-of-water parking spaces for boats up to 150 feet long.
Lauderdale Marine Center is “not really getting anywhere near the credit they should,” says Steel, the towing business owner and LMC tenant. “They’re putting millions into the infrastructure of this place – machines, docks, power. They’re doing more than most of the other shipyards in Fort Lauderdale combined in the last 10 years.”