The nation’s luxury-boat builders, many clinging to their businesses after two years of plunging sales, finally got some good news last week.
President Bush, in his budget proposals, asked Congress to repeal the 10 percent luxury tax on yachts priced at more than $100,000 (and also on private planes that cost more than $250,000). The repeal, which Congress is likely to approve, would be retroactive to Feb. 1.
Since the tax took effect in January 1990, hundreds of builders of large and small boats have spoken of it as a stake driven into the heart of an industry already suffering from the recession, tighter bank rules on financing and fallout from the gulf war.
In the last two years, about 100 builders of luxury boats — recreational craft costing more than $100,000 — cut their operations severely and laid off thousands of workers. Some builders filed for protection from creditors under Chapter 11 of the Federal Bankruptcy Code.
Now, sales personnel and owners of marine companies are hoping they will be swamped by buyers who have held off in the expectation that the tax will be repealed.
The 10 percent tax applies to the amount of the cost above $100,000, so that a boat selling for $300,000 carries a $20,000 luxury tax. That tax is in addition to any state and local taxes.
Mr. Bush’s proposals were endorsed by Senator George J. Mitchell, Democrat of Maine and majority leader, whose state is active in boat building. That increases the chances that Congress will accept the argument that repealing the tax will create jobs and promote economic growth. Overall employment in the industry, including the makers of smaller, less-expensive boats, has dropped to 400,000, from 600,000 in 1988.
Adding to the industry’s optimism are signs of a small revival in boat sales. Most companies said they sold more boats at the New York National Boat Show earlier last month than at last year’s show, when sales were very weak. They said the boat show also had good attendance during its run at the Jacob K. Javits Convention Center in Manhattan.
Also, boat prices have dropped as much as 40 to 50 percent, interest rates have fallen and some lenders have begun to offer financing, though on very strict terms.
In 1991, sales of luxury boats dropped 70 percent from 1990’s level, while overall boat sales fell 18 percent. Relies on Foreign Customers
“The luxury tax really hurt us,” said William J. Healey, the president of the Viking Yatch Company in New Gretna, N.J.
He gestured toward a few big luxury boats being built there. A 50-foot boat costing $800,000 is bound for Italy; a $1 million yacht may be sold in Japan. A 65-foot motor yatch costing $1.3 million is bound for Greece.
The business from overseas, developed in the last two years, is enabling Viking to limp along, its work force cut to 150 workers from 800. “Very fortunately, it has helped us weather the downturn,” Mr. Healey said as he pointed to two production lines that have been inactive for several years.
Domestic demand fell so sharply that a year ago Viking shut an operation in Tampa, Fla., that employed 800 workers. The plant was built in the boom of the 1980’s, when most boat makers could not keep up with demand.
Robert A. Hazard, the general manager of the Egg Harbor Yacht Company in Egg Harbor City, N.J., got some orders at the New York show that strengthened the company’s attempt to emerge from Federal bankruptcy protection. In a few weeks, a bankruptcy judge is expected to approve a reorganization plan under which management is pledging most of its personal financial resources to help back the plan.
“Everyone of us came out of the show with orders,” Mr. Hazard said. He said he could have sold more boats but buyers had decided to wait in the hope that the luxury tax would soon be repealed.
Guy Castranova, who owns a contracting business in the Caribbean, is in the market for a 36-foot Tiara motor yacht that costs about $300,000. “Now is the time to buy,” he said. “Interest rates are down, prices are lower. Tradition in South Jersey