Mihos paid Mass. no tax on his yacht

Independent gubernatorial candidate Christy Mihos, a multimillionaire businessman, avoided more than $23,000 in Massachusetts sales tax and $1,320 in local excise taxes on his luxury motor yacht by forming a corporation in Rhode Island to purchase and own the boat, a Globe review of the transaction shows.

Mihos's lawyer set up The Yacht Ashley Inc. in Rhode Island, making Mihos the sole director and officer, to buy the yacht from a Portsmouth, R.I., dealer for $475,000 seven years ago. Mihos named the 36-foot yacht Ashley, and the corporation registered with the Coast Guard using the office of Mihos's Newport lawyer as the address. The Coast Guard registration lists the boat's hailing port as Mihos's West Yarmouth home.

In an interview, Mihos said that he established the Rhode Island corporation to own the boat because his accountants and lawyers had advised him to do so. Mihos says that he keeps the vessel, a model called a Little Harbor WhisperJet, in waters near his West Yarmouth home during the summer and that he moves it in the fall to Rhode Island for winter storage, service, and upgrades. He said he and his family use it in Rhode Island ``once in a while."

Rhode Island exempts yachts from sales tax and excise taxes. Massachusetts requires a state resident who purchases a yacht in another state, but berths it here, to pay a 5 percent sales tax.

However, Mihos appears to have taken advantage of a provision that says a boat owner may be exempt from the Massachusetts sales tax if the boat remains out of state for the first six months after the sale. Mihos said the boat remained in Rhode Island for more than six months after he purchased it in January 1999. He said he then brought it to his home in the gated community where he lives on Great Island, across Hyannis Harbor from the Kennedy compound.

In interviews this week, Mihos and his lawyer insisted that his strategy was a legal way around taxes.

Asked if the issue of paying a Massachusetts sales tax was raised at the time he bought it, Mihos said: ``At the time I was advised by counsel, we didn't have to. I took him at his representation. It is what it is."

Joseph M. Hall, Mihos's Rhode Island lawyer, said he advised his client to create the corporation and establish its address at his law firm, in part to take advantage of the fact that there is no sales tax on boat purchases in Rhode Island. Furthermore, corporate entities are often used to protect individuals from personal liability lawsuits.

``He is not dodging a thing," Hall said. ``He is taking proper advantage of the opportunities that were available to him then and that are still available to him. . . . We did the right thing. There's nothing improper about it."

The strategy is not uncommon among boat owners. However, the state Department of Revenue still pursues sales taxes owed, plus penalties and interest, if it is clear that the owner took steps to avoid the tax, said department spokesman Tim Connolly.

A separate provision in tax law says that a boat kept in Massachusetts waters for more than two weeks in a summer is subject to the excise tax, which, like the auto excise tax, is collected by local communities.

Boat owners are required under state law to report under oath to local assessors where their boat is moored for the summer season. The Ashley is not listed on the tax rolls for the town of Yarmouth, according to the assessor's office.

Mihos said that he did not know he was liable for an excise tax, because the owner is listed as a Rhode Island corporation.

The law requires communities to annually impose an excise tax rate of $10 per $1,000 of valuation on boats. Under the depreciation schedule set by the Legislature, Mihos's yacht is valued at $12,000 for tax purposes, requiring him to pay $120 a year in excise tax on the Ashley. In 1999, the tax valuation was $24,000. Over the seven-year period, the total payments would have been $1,320.

Mihos does register a 16-foot Zodiac motor boat with the town of Yarmouth, paying a $33 annual excise tax, according to town records.

As a candidate, Mihos has championed fiscally strapped cities and towns, which rely in part on excise taxes. He has strongly condemned the decline of state aid to local communities and called for returning 40 percent of all state tax receipts to municipalities. They now get 30 percent of those receipts.

In one of his first speeches as a candidate, Mihos told a 400-person meeting of the Massachusetts Biotechnology Council in March that the news media shouldn't bother investigating his tax history because he had always paid them.

Mihos's avoidance of a Massachusetts sales tax reflects an arrangement commonly used by yacht owners.

Politicians' use of out-of-state registrations to avoid sales and excise taxes has flared up several times over the past two decades in Massachusetts. In the early 1980s, state tax officials launched a crackdown on the practice. In 1986, GOP gubernatorial candidate George S. Kariotis was embarrassed when it was disclosed that he was liable for $15,000 in back taxes and fines after dodging the state sales tax on his luxury yacht that he registered in Delaware.

In another instance, Jack E. Robinson, an often controversial Republican political candidate who is the GOP's current contender for Congress in the Ninth Congressional District, purchased a $400,000 French-built sailing yacht from a Cape Cod boatyard in 2000 and contended that it was delivered to him in Newport. ``Tax avoidance is perfectly legal," he declared.

But the state Department of Revenue found otherwise and ruled that the boat never left Massachusetts. Robinson was ordered in 2005 to pay a $20,000 sales tax, which, after penalties and interest, had grown to $80,000.

Two years ago, state Auditor A. Joseph DeNucci issued a scathing report on the state's system for collecting excise taxes by local communities, saying that it was ``ineffective, inefficient."

The lack of compliance by boat owners and lack of enforcement by local officials results in the loss of millions of dollars in potential revenue for cities and towns, the report stated.