Seattle Maritime Law Blog : Seattle Maritime Lawyers & Attorneys : Mikkelborg Broz Law Firm : Collision and Salvage, Fisheries, Jones Act : Seattle, Washington

I recently addressed marine industry audiences in the Puget Sound region on the subject of the pending draft sVGP.

The draft VGP currently proposed will replace the current 2008 VGP when it expires December 19, 2013. The draft sVGP, once finalized, will authorize discharges incidental to the normal operation of non-military and non-recreational vessels less than 79’ in length. 

Presently, a Congressional moratorium exempts all incidental discharges, with the exception of ballast water from commercial fishing vessels and non-recreational, non-military vessels less than 79’ in length, from having to obtain a Clean Water Act permit until December 18, 2013. The sVGP would provide owners and operators with permit coverage for these vessels after that date. 

The 2013 draft VGP will continue to regulate 26 specific discharge categories that were enumerated in the 2008 VGP, and for the very first time authorize the discharge of fish hold effluent. This draft of the VGP now contains numeric ballast water discharge limits for most vessels and more stringent effluent limits for oil to sea interfaces and exhaust gas scrubber wash water. 

The EPA is also proposing to improve the efficiency of several VGP administrative requirements, including electronic recording keeping, an annual report in lieu of the one-time report and annual non-compliance report, and also requiring small vessel owners and/or operators to obtain coverage under the sVGP by agreeing to the terms of the Permit Authorization and Record of Inspection form. 

The sVGP is organized by discharge management categories to include: fuel management, engine and oil control, solid and liquid maintenance, gray water management, fish hold effluent management, and ballast water management. 

All vessels eligible under the sVGP will receive coverage at the time and date of the expiration of the moratorium, December 18, 2013. 

As a requirement of a permit, owners and operators must complete the sVGP Permit Authorization and Record of Inspection (PARI) form. Additionally, a permittee must conduct an annual self-inspection and certify having done so each year. 

The EPA is accepting comments on the proposed permits for 75 days after publication in the Federal Register (commenting deadline is February 21, 2012). Comments can be submitted:

• Online at:          http://www.regulations.gov/#!documentDetail;D=EPA-HQ-OW-2011-0141-0001
• By email to:      OW-docket@epa.gov
• By mail to:    

Water Docket

U.S. Environmental Protection Agency

Mail Code 2822T

1200 Pennsylvania Avenue N.W.

 Washington D.C., 2046

  Attn: Document I.D. No. EPA-HQ-OW-2001-0141. 

Public meetings will be held on January 11, 2012 in Washington D.C., and January 23, 2012 in Chicago, IL.

For more information, see: http://www.epa.gov/npdes/vessels.

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In an opinion issued by the U.S. Court of Appeals for the Eleventh Circuit on July 8, 2011, in the case of Quail Cruises Ship Management Ltd. V. Agencia de Viagens CVC Tur Limtada, et.al., the court determined that a purchaser of stock of a foreign company that owned a commercial vessel could maintain claims in U.S. courts for securities fraud, maritime torts of fraud in the inducement, recklessness and negligence/negligent representation and common law claims for civil conspiracy to commit fraud in the inducement and breach of fiduciary duty. 

The case involved the sale of the M/V PACIFIC, better known as the Love Boat from television show of the 70s and 80s. According to the plaintiff, the vessel’s owners and managers deferred much needed maintenance on the vessel, influenced Lloyd’s Register North America, Inc. to provide favorable inspections, and misrepresented the condition of the vessel, in reliance upon which the plaintiff was induced to purchase the shares of the foreign company that owned the vessel. When the plaintiff later learned of the actual condition of the vessel, the law suit, based in large part on alleged securities fraud, followed. 

The opinion of the appellate court focused primarily on the jurisdictional basis for the maintenance of the lawsuit, i.e. whether there was a sale of securities that took place in the U.S. Nevertheless, the case also illustrates the increased liability exposure of those that choose to sell the ownership of the company that owns a vessel, rather than selling the vessel as a separate asset.   Normally, in an asset sale of a vessel, the principle of caveat emptor, or “buyer beware” applies. When a seller sells stock or other securities, state and federal securities laws apply to create far greater disclosure requirements on sellers.   While tax effects generally drive the decision of whether to sell stock or assets, the increased liability exposure in selling stock is a factor to be considered. 

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ESPN just recently listed the top ten states for boat sales, and Washington came out number seven at $339 million.  It comes as no surprise to those of us who know the beautiful protected waters of the San Juan Islands, tucked way behind Vancouver Island, are perfect for boating.  What does take many boaters by surprise is Washington's dual registration and excise tax requirements for vessels, commercial and pleasure alike. Every year, July 1 marks the date boats must register and pay any excise taxes due or owing for the following year. 

Washington's registration of vessels is administered by the Department of Licensing, and the excise tax is administered by the Department of Revenue.  Boaters often get inconsistent advice from a variety of sources, as to the requirements for the pleasure of owning or using a vessel in Washington.  The requirements are different for residents of Washington from non-residents of Washington.  The requirements are also different for entities owning a vessel that is used in Washington.  And finally, the requirements are different for documented vessels. 

Washington's Department of Revenue is extremely aggressive in collecting Washington's sales and use tax on the sale or use of a vessel in Washington.   Likewise, the Department of Revenue is increasingly more aggressive in investigating cases of nonpayment of the Watercraft Excise Tax, (a/k/a the WET tax).  

We often have clients call us in September, after the Department of Revenue has mounted a case against a vessel and its owner for failure to register, improper usage of the vessel in Washington without paying the use tax, failure to register the documented vessel, and/or failure to pay the WET tax. 

Here are a few tips to consider prior to geting the notice of audit from the Department of Revenue:

a.  Keep an accurate and current log book for the vessel.  This will be the first item the Department of Revenue will seek in discovery in an audit.

b.  If the vessel is owned by a nonresident:  Know the time periods the vessel can be in Washington without incurring the use tax.  The vessel can be used in Washington for a period of 60 days in a 12 month period (not a calendar 12 month period, but first date of entry begins the 12 months).  The vessel's use can be extended for another 6 months (if owned by an individual and not an entity) if the owner obtains a special identification permit from the Department of Licensing. 

c.  If your vessel is Coast Guard Documented:  special requirements for documentation and a US Custom's cruising license must be obtained.  The requirements change depending on whether the owner is a Washington resident or not. 

d.  Keep receipts for repairs made in Washington.  Keep receipts for repairs made outside of Washington.  If the vessel was not actually being 'used' due to repair, these receipts can help strengthen negotiations with the Department in an audit. 

e. Be aware:  Washington's Department of Revenue shares information with Habor Masters, marina employees, and US Custom Agents.  Don't be fooled into thinking that you will not get caught. 

For more on ESPN's top ten states for boat sales see the full story. 

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By John E. Lenker

On December 18, 2008, the Environmental Protection Agency (EPA) signed the final version of the Vessel General Permit (VGP). The VGP was set for an effective date of December 19, 2008, but the U.S. District Court for the Northern District of California signed an order that pushed the effective date to February 6, 2009. 

The VGP regulates discharges incidental to the normal operation of vessels operating in a capacity as a means of transportation.  The discharge types that are eligible for coverage under the VGP include: Ballast water; Bilge water; Deck washdown and runoff and above water line hull cleaning; anti-fouling leachate from antifouling hull coatings; aqueous film forming foam (AFFF); boiler/economizer blowdown; cathodic protection; chain locker effluent; firemain systems; freshwater layup; gas turbine wash water; greywater; and many others (the complete list is available under Section 1.2.2 at http://www.epa.gov/npdes/pubs/vessel_vgp_permit.pdf).

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An increasing number of clients have had difficulty with the Washington State Department of Revenue's interpretation of RCW 88.02, regarding the registration of pleasure vessels in the State of Washington.  Washington imposes an excise tax on vessels over 16 feet in length for the privilege of using Washington waters for their vessels or yachts.  Boat owners obtain a Washington decal which they obtain paying the excise tax, measured at .5% of the vessel's value.  However, owners with vessels documented with the U.S. Coast Guard have often been told by Washington State Department of Licensing that only a decal is needed, not the registration, which would imply that the excise tax is not required. 

This apparent interpretation problem could result in a variety of results which is always a problem when dealing with taxing authorities. 

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