Chesapeake Prosperity Sunk by Boat Tax

The reigning politicians in my home state of Maryland are somewhat boxed in by geography. Clearly they are smitten with high-tax policies: the Tax Foundation rates the state's overall tax structure among the country's most onerous, 42nd out of 50, and the trend lately has not been favorable, with lawmakers having raised taxes and fees 24 times in just the past couple of years, as the Maryland Public Policy Institute points out.

On the other hand, Maryland's smallish size and attenuated shape poses a tricky problem: most of the state's population lives just a short drive from other states, and choosing to shop or do business in one of those other states—maybe even switch one's residence there—is far less disruptive than it is for most Californians. Virginia has lower gas and sales taxes, for example, while Delaware levies no sales tax at all. Politicos still hotly dispute how many high earners were driven away by a 2007-2010 special "millionaire's tax," but no one argues with a straight face that the number was zero. Business taxes in Maryland, as the Tax Foundation explains, are set up so as to fall relatively lightly on mature incumbent businesses and much more heavily on new startups; that probably does dissuade some established businesses from fleeing, but at the alarming cost of stifling the new kind.

Over the weekend the Capital Gazette of Annapolis ran a news story about how marinas and other shoreline businesses have been badly hit by Maryland's decision to retain a stiff excise tax on boat ownership (five percent of value if kept in the state more than 90 days a year). Other big maritime Atlantic states such as Virginia, Delaware, and Florida all offer better deals. The results? Boat owners keep their vessels elsewhere, registrations have drooped, and docking, repair, supply, and restaurant businesses suffer, the Capital Gazette reports:

It’s hard to fathom Maryland, home to Annapolis, known as the “Sailing Capital of the World,” would be in the bottom half of the country in total sales for boats, engines, trailers and accessories.

Yet Maryland’s sales fell from $183 million in 2010 to $162 million in 2011, placing the state No. 26 in the nation. In 2008, that number was $248.5 million.

Even the revenue from the excise tax itself is way down, "from about $29.9 million to $15 million" since 2006, the newspaper adds.

It's as if the lawmakers in Annapolis didn't realize that boats are mobile. I wish someone could have explained that to them.