Boat dealers predict sales increase Luxury tax repeal helps ANNE ARUNDEL COUNTY BUSINESS

The United States Sailboat Show opens in Annapolis tomorrow with boat dealers buoyed by an upswing in sales that they say stems from the repeal of the federal luxury tax on boats.

“Business has picked up tremendously,” said Bob Hummel, president of Midlantic Marine Inc., a power boat dealer on Kent Island.

Boating industry leaders have blamed the 10 percent tax on boats priced above $100,000 for costing billions of dollars in lost sales and tens of thousands of jobs between 1990 and 1993, when it was in effect.

Mr. Hummel said he had not sold a boat priced over $100,000 for two years. But immediately after Congress repealed the luxury tax as part of the Clinton economic package, customers began calling. Mr. Hummel already has sold one boat for $135,000 and is in the process of selling another for $600,000.

“A lot of people were just waiting for the tax to be repealed,” he said.

“If that tax would have stayed on another two years, I’m not sure we would have survived,” said Jerome C. Finefrock, president of Hans Christian Yachts America Inc., in Annapolis.

While the problems in the maritime industry were not limited to the luxury tax, the tax “was the nail in the coffin,” said Peter Tsou, manager of Onset Yachts in Annapolis.

Now that the tax is gone, industry leaders say there are signs of revival.

“A lot of brokers for top-end boats are seeing a dramatic rise in inquiries,” said Beth Kahr, administrative director for the Marine Trades Association of Maryland, based in Annapolis.

Mr. Finefrock said many people who could afford a $250,000 boat were angry about the luxury tax and refused to buy until it was repealed. “It was psychological,” he said.

The increased business bodes well for the Annapolis boat shows. This year’s sailboat show runs through Monday. The United States Powerboat Show will be held next weekend.

Already there are indications that this year’s boat shows will be more successful than they have been for several years, said Jeff Holland, a spokesman for Annapolis Boat Shows, which coordinates the shows.

The company recently held a boat show in New York City, and five of 50 boats on display were sold. “It was remarkable,” Mr. Holland said.

Maritime industry leaders had lobbied to have the tax repealed because of its effect on jobs and revenue.

Before the tax went into effect, there were 600,000 people employed in the marine industry nationwide. The recession cost 100,000 jobs, and the luxury tax resulted in the loss of another 25,000, the National Marine Manufacturers Association estimates.

Boat sales nationally dropped 42 percent during the period, from $17 billion in 1989 to $10 billion in 1992.

The tax’s overall impact in Maryland is hard to measure. The state’s Marine Trades Association estimates that as many as 300 of the state’s approximately 1,500 marine-related businesses went under in the last few years.

According to a study commissioned by the Annapolis city government last year, the number of marine businesses in the state’s capital declined 11 percent between 1987 and 1991.

And there is anecdotal evidence of the toll it took. Midlantic Marine’s sales dropped from $6 million in 1989 to $1 million in 1992, and its work force decreased from 19 to 6 during the time the luxury tax was in effect.

At Onset Yachts in Annapolis, sales dropped from 15 to 20 boats a year in the mid-1980s to only three or four a year during the past few years, Mr. Tsou said.

But this year, a survey of Annapolis’ maritime businesses showed that 53 percent of the respondents thought their business was better than last year, and 47 percent said business was better than three years ago.

And while revenues from the state excise tax on sales of new and used boats dropped from $15 million in 1990, to $10.8 million in 1993, the yearly decline actually started in 1989 before the tax was imposed.

Most dealers said they expect the industry to recover slowly. They point out that the luxury tax was only one problem. The recession and an oversupply of boats also contributed to the decline of the industry, and they expect customers to wait until their financial situation is more certain before buying a new boat.

Some boat owners, for example, are facing new taxes. Operators of power boats will be forking out an additional 20.1-cents-per-gallon tax on diesel fuel starting in January. Although that tax may cost boat operators an extra $100 per fill-up, it isn’t expected to be as damaging as the luxury tax.

“People will gripe about it, but a few cents per gallon on each fill-up is a lot less than $50,000 at one time,” Mr. Hummel said.