Washington’s One-Year Exemption Permit for Nonresident Individuals: The Good, the Bad, and the Alternatives

For nonresident individuals who own vessels for use in Washington State, here’s a piece of good news: Washington’s sales and use tax and registration provisions include a one-year exemption for vessels 30 feet or longer owned by nonresident individuals.

For vessels purchased in Washington, the use permit must be purchased from the broker or dealer at the time of purchase. Nonresident individuals who purchase the vessel can’t separately purchase the use permit from another vessel dealer or broker. Also, nonresident individuals who acquired a vessel 30 feet or longer outside Washington must purchase the one-year use permit within 14 days from first entering the State with the vessel.

Here’s the bad news part: if they choose to purchase the one-year use permit, they will forgo the ability to rely on other exemptions available to nonresidents.

The reason the use permit allows the vessel to remain in Washington for one year is that it was adopted with Californians in mind, although it applies to a nonresident individual of any state or country. California use tax does not apply to vessels purchased by California residents and first functionally used outside that state for the first 12 months. If the California resident brings the vessel into California within the first 12 months, the purchase is presumed to have been made for use in California, and it is subject to use tax. The presumption can be rebutted.

If the vessel is purchased by a nonresident of California, the length of time the vessel has to remain outside California during the first 12 months of ownership to avoid California use tax is shorter.

Vessels relying on the one-year use permit in Washington to qualify for the tax and registration exemptions must be removed from the State before the use permit expires and may not return to the State for 24 months after the use permit expires. If the vessel returns to the State before the 24-month period ends, the vessel is subject to either Washington’s sales or use tax retroactively to the date of purchase or date of first entry, plus interest.

So, what’s not appealing about Washington’s one-year tax and registration exemption? The requirement that the vessel has to remain outside the State for 24 months. Many nonresident boaters, particularly those who have cruised Pacific Northwest waters very little or not at all, search for means to extend their stay in the region as the permit nears its expiration. But in their case, it’s not possible to do so without sales or use tax applying retroactively. Also, the requirement that the vessel must remain outside Washington for 24 months means that the vessel cannot be left in the State with a broker to sell it, without paying the sales or use tax.

Alternatively, if nonresident individuals do not obtain the one-year use permit, they would be able to leave a vessel with a broker in Washington to sell it without use tax applying due to the additional days the vessel is in the State.

Having advised many nonresident owners that they cannot bring their vessels back to Washington tax-free for such an extended period, we rarely use the one-year use permit in our tax planning. There are other alternatives we may pursue with our clients in order to exempt such vessels from Washington’s taxes, while allowing them to remain in the region longer.

Disclaimer: This outline provides only a general overview of these issues. Please consult with legal counsel regarding application of the law to your particular circumstances.