‘Not paying a dime.’ Bill would require houseboat IDs in KY, boost tax collections.
Many houseboat owners in Kentucky don’t pay property taxes on their vessels, but local and state officials are taking another run at making them comply in order to collect money that would help local schools and other services.
The effort in the current legislative session is House Bill 418, which would create a way to track houseboats in counties where they are docked and collect the property tax.
The boats at issue are called “documented” boats, meaning they’ve been registered with the U.S. Coast Guard. Generally, boats longer than 25 feet meet the weight threshold to be documented, the Coast Guard says. In Kentucky, that’s mostly houseboats and large cruisers.
State law requires owners of documented boats to file a tangible tax return each year with the tax assessor in the county where they are docked, and pay property tax on them. Many owners are skirting that responsibility, however, according to local officials.
Tim Popplewell, the property valuation administrator in Russell County, estimates there are about 1,000 documented boats in the county on Lake Cumberland. Popplewell has used aerial photography to count houseboats at marinas and also visited a marina to count boats that would likely qualify for Coast Guard documentation.
From that estimated pool of 1,000, his office received 236 tax returns on documented boats in 2019, Popplewell said.
“We’re getting less and less compliance every year, unfortunately,” he said.
Popplewell’s counterpart in Taylor County, Chad Shively, thinks no more than one in four documented boat owners there file the required tax returns.
It’s a conservative estimate that there are 200 houseboats on Green River Lake in the county, Shively said. His office got 50 tax returns in 2018.
“In many instances, they’re not paying a dime” in property taxes, Shively said.
Mac Bushart, head of the association representing property valuation administrators, estimated no more than a third of documented boat owners statewide pay property taxes on the boats.
A former state lawmaker, Republican Rep. C. Wesley Morgan of Richmond, acknowledged in 2017 that he hadn’t paid property taxes on a luxury houseboat for more than a decade. Morgan said the boat maker had told him, incorrectly, that he didn’t have to pay property taxes if he documented the vessel with the Coast Guard.
One problem with not filing tax returns on documented boats is that property taxes are a key source of revenue for local services.
In Russell County, for instance, entities that include the public library, the ambulance service, the hospital and the health department miss out on an estimated $319,000 each year from documented boat owners not filing tax returns, Popplewell estimates.
The biggest loss, estimated at nearly $170,000, is to the school system. That’s a conservative estimate, so the actual amount is likely higher, Popplewell said.
Charles Higdon Jr., school superintendent in Taylor County, said better tax collections on documented boats would help schools as they face increased costs for recommended safety measures and mental-health help for students.
The Taylor County schools are spending about $200,000 a year on school resource officers, for instance.
“It’s costing a lot out of our budgets,” Higdon said.
Improved compliance with tax payments on documented boats would help cover that cost, he said.
Property valuation administrators (PVAs) say the reason many people don’t pay the tax is because there’s not a good way to identify documented boats.
People who own non-documented watercraft such as bass boats, ski boats and pontoons are required to register them at the county clerk’s office, pay the tax on them and get a sticker to display on the boat.
Officers from the Department of Fish and Wildlife Resources, who patrol the state’s waterways, can see if a boat doesn’t have a current sticker.
Owners of documented boats don’t have to get a state registration sticker. That leaves no effective way for law enforcement and tax authorities to tell if an owner has paid the tax on a documented boat, according to PVAs.
“Right now there is no identification to be able to police it,” Shively said.
An analysis with HB 418 said the state Department of Revenue reported 1,571 documented boats in 2018 and 1,359 in 2019, based on tax returns filed.
But with no requirement for the boats to be registered in Kentucky, it is “nearly impossible” to figure out whether owners filed returns, the analysis said.
HB 418, sponsored by Rep. James Tipton, R-Taylorsville, would require owners of documented boats to register them at the county clerk’s office and get a state sticker to put on the bow, creating a way to identify them and collect the tax.
There are more than 30 counties in Kentucky with documented boats on lakes and rivers.
Collecting property taxes on the boats is actually a statewide issue, however, because a failure to collect taxes in a county affects the formula for how the state distributes money to all public schools, said Eric Kennedy, director of advocacy for the Kentucky School Boards Association.
The KSBA “strongly supports” HB 418, Kennedy said. The Kentucky Association of Counties also supports the bill.
In addition to the issue of revenue for local services, it’s not fair for some documented boat owners to shirk their property taxes while others pay, supporters of HB 418 say.
“It’s just not right,” said Danny Tabor, who has a houseboat on Barren River Lake. “It’s not a level playing field.”
Shively has compared the situation to three out of four homeowners in a subdivision not paying property taxes.
Even when they do pay, documented boat owners get a substantial break on the state portion of their property taxes. The state tax rate on the boats is 1.5 cents for each $100 of assessed value, compared to a rate of 45 cents on non-documented watercraft such as bass boats.
That means the state tax to the owner of a $25,000 bass boat would be $112.50, while that portion of the tax bill for the owner of a $150,000 houseboat would be $22.50.
However, there’s no similar tax break on local property taxes, meaning houseboat owners face substantially higher bills. Local property taxes are a sore spot with many documented boat owners, who complain the rates are too high.
Taxes have been a factor in owners moving boats out of Kentucky, taking money out of the tourism economy, and hurt efforts to revive the houseboat manufacturing industry in the state, said J.D. Hamilton, who owns marinas on Lake Cumberland and manufactures houseboats and floating cabins.
“The houseboat industry is really suffering,” said Hamilton, a past president of the Kentucky Marina Association. “How many more ways you want to kill it?”
Houseboat owners also have argued that local taxes on documented vessels aren’t fair because many owners live in other counties or states, so they don’t use the schools, libraries and services their tax dollars support.
The marina association has advocated a different system for collecting boat taxes, replacing property taxes with a requirement for a fee on every boat that uses a Kentucky waterway based on the length of the boat, with the money going to local entities and the state.
That would create a uniform system, rather than a patchwork of local rates; would be easy to collect; and would catch revenue from people who haul in their boats for a weekend but don’t register them in Kentucky, advocates say.
“Everyone’s going to pay something. No one’s going to pay a ton,” Hamilton said.
Marina operators opposed a measure in the 2019 legislative session to require county registration of documented boats, and it failed.
Supporters of HB 418 say if all documented boat owners were paying property taxes, that would allow local taxing districts such as schools to lower their tax rates.
And they believe there’s no reason to put off a measure aimed at enforcing a law that’s already on the books while debating a change to the tax structure on boats.
Tipton, sponsor of HB 418, said the bill wouldn’t impose new or increased taxes.
“This is a way to provide compliance with existing law,” he said.
