TN Dept. of Revenue speaks out on boat controversyPosted: Feb 10, 2012 7:39 PM PSTUpdated: Feb 10, 2012 8:09 PM PST
MURFREESBORO, TN (WSMV) -
A state representative thought it was a joke when he heard that a father and his young son had been labeled as "boat dealers" because of a small, wood boat they built in their garage.
The family has been getting letters from the Tennessee Department of Revenue threatening them with court actions, fines and liens if they didn't pay $539 in on their fishing boat.
Johnathan King and his 7-year-old son Carter spent three weeks assembling the 14-foot boat according to plans they ordered over the Internet. After registering the boat, they started getting correspondence from the revenue department referring to them as "boat manufacturers and dealers."
State representative Joe Carr didn't believe it when he first heard about it.
"I initially thought it was a joke, because it was so absurd," Carr says.
"No reasonable person would believe that Mr. King is in the manufacturing business for boats," he says.
"Initially, I thought it was an error," King says. After he told the state this was just a small fishing boat the two had built at home, he expected the revenue department would relent, but they did not.
"To put it politely, I thought it was quite silly," King says.
Carr says either revenue is misinterpreting the law and taking it to an extreme, or the law needs to be fixed. He meets with revenue officials Monday.
If their theory holds true, he says, it's a slippery slope.
"If, as an individual, I go to Home Depot or Lowe's or some lumber yard, and I decide I'm going to build a picnic table for my patio, does that make me a furniture manufacturer?" Carr says.
Since Channel 4 first reported the story Wednesday, the topic has been widely discussed on blogs across the country.
"Seems ludicrous," someone from the northeast wrote on woodenboat.com. "Can't be a manufacturer or dealer if you're not making the product for sale."
The Department of Revenue issued a statement after we asked them for three days to explain their position.
"It is not the Department's position that an individual who builds a boat from a kit or component parts is in the business of selling boats," write communications manager Billy Trout.
The statement says the "dealer," which is used in the tax statutes, also refers to a purchaser. They regret if information from the department was confusing.
The revenue department's statement explains that state statutes protect taxpayer privacy, and therefore, they cannot discuss tax matters involving particular taxpayers.
"We would like to provide some general information about use tax and boats," the statement says.
"Generally, sales tax is collected by the seller when an item, such as a boat, a boat kit, or component parts, are purchased. Sometimes, such as when the item is purchased outside the state, the tax is not collected by the seller. In those cases, the purchaser must pay, under state law, a "use tax" on the item. Use tax is equal to the sales tax that normally would have been collected by the seller. The purpose of use tax is to ensure that all purchases are taxed alike, whether bought from a seller in Tennessee or outside the state.
"When a boat is registered, the boat owner is required by law to document that sales or use tax was paid on the price of the boat. If the boat was built from a kit or other component parts, the owner must show that sales or use tax was paid on the kit or parts. Receipts or invoices are acceptable proof, as are records that show the taxpayer paid use tax directly to the Department of Revenue. When no information is provided, the Department must determine whether tax is due."
King says he's pulling together invoices and receipts for all the building materials used in the boat, but it's difficult, since some materials were purchased as much as three years ago.
He says he's absolutely not a boat dealer, and would never sell the boat, which he considers an heirloom to be passed on to his son's children some day.
"It ought to last 30 or 40 years," King says.
"We must now defend ourselves as dealers. I'm still trying to get my mind around the docket, 'Tennessee Department of Revenue vs. Carter King, 7 years old,'" King says.
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