How to Avoid Taxes, Cruise European Seas

It's a huge boat for a tiny tax-and-secrecy haven. The new $33 million yacht sported by David Copley, owner of Copley Press and

The Union-Tribune, is registered in Majuro, capital of the Marshall Islands, a republic halfway between Indonesia and Hawaii, with a population of only 60,000.

The yacht, called Happy Days, had a prestigious front-row berth last summer in Monaco, according to people in the La Jolla social swim. Copley and friends have been cruising on the craft recently. (The glitzy Monaco is also a tax-and-secrecy haven, called "tax haven to the stars." Monaco is home to Richard Cramer, formerly of La Jolla and the Copley Press board, now an expatriate because of a tax lien from the Internal Revenue Service. Copley dined with Cramer and his wife in Paris last spring.)

Less than two years ago, the Organisation for Economic Co-operation and Development, a research organization promoting the global economy, said that it classified only five of the world's tax-and-secrecy havens as uncooperative. One was the Marshall Islands. Another was Monaco. Both claim to be opening up.

Happy Days is the largest composite yacht ever made in the Americas, according to press materials sent out by the builder, Delta Marine Industries of Seattle. (A composite yacht is one made of space-age materials rather than the conventional steel or aluminum.) The craft is 164 feet long. It has 7500 square feet of living area, a master suite with lounge and dining area on the upper deck, and six large staterooms on the main deck. An elevator travels through all four decks. It requires a crew of 12.

The yacht's official owner is KABOOM L.L.C. (limited liability company) of Majuro. The little nation brags that "Marshall Islands law statutorily exempts non-resident yacht-owning corporations from taxes." Secrecy is guaranteed: there are "no publicly accessible records" and no requirements for annual filings.

It takes only a day to set up a company online at a cost of $450. "According to our correspondent, The Trust Company of the Marshall Islands, Inc., an entity by the name of KABOOM L.L.C. was formed in May of 2005," says Melissa A. Hurst, general counsel for International Registries, Inc., the maritime and corporate administrator of the Marshall Islands. Under the secrecy laws, she could not reveal the name of KABOOM's beneficial owner. However, on May 20, 2005, an entity called KABOOM II L.L.C., with David Copley as registered agent, was filed with the California secretary of state.

KABOOM, owner of the yacht, was set up under the no-tax rules in the Marshalls. "The tax benefit is the fact that the Marshall Islands is a zero-tax jurisdiction," says Hurst. The Marshalls boast of other financial benefits. For example, the islands have a reciprocal agreement with the United States: Marshalls-registered pleasure yachts are exempt from U.S. Customs formal entry and clearance procedures.

"If you're traveling to Europe and other places, there could be taxes incurred in every port of call," says Jonathan Ives, executive director of the Washington-based Northwest Yacht Brokers Association. "So they register in the Marshall Islands in order that they won't be taxed when they enter these ports." The close relationship between the United States and Marshall Islands helps facilitate such arrangements. The Marshalls are among the five leading ship registries today, along with Panama, Liberia, the Bahamas, and Greece. The island republic expects to supplant Liberia in second place within four years.

"When a boat is being run all over the world, it is not unusual to have yachts registered in the name of an L.L.C. in a tax haven," says a San Diego yacht salesman. Under a state law recently extended through June 30 of this year, the yacht owner can only avoid a sales or use tax if the craft is out of the state for at least a year from the date of its purchase. Delta was to deliver the craft to Copley in the first quarter of 2006. Thus, his first year is almost over. If the vessel was exclusively used outside of California in the year since its purchase, it is exempt from a sales or use tax. (A use tax is imposed in place of a sales tax when a product is purchased out of a state. Copley would be subject to a use tax but almost certainly won't have to pay it because the craft has been cruising European waters, far from California.) Just three years ago, a yacht had to be out of state for only 90 days to avoid the sales or use tax. "When they changed it, more and more registered in foreign jurisdictions. It's kind of unpatriotic to some extent."

Says the Offshore Yacht Registry Newsletter, "Registering offshore allows for a vessel to be purchased while paying no sales tax." Throw in the avoidance of property taxes, and the savings could be almost 10 percent, says the publication. A few plutocrat-obsequious states such as Delaware exempt yachts from sales and use taxes, but by registering offshore, "The identity of the true owner of the yacht will be protected" from most government agencies, lawsuits, and foreign courts, the publication claims.

A major reason a yacht owner registers under a foreign flag "is the ability to hire a foreign crew," says Cris Wenthur, San Diego attorney specializing in maritime and tax law. "You're not subject to minimum-wage requirements. You don't have state withholding for employment taxes." By registering the yacht offshore, the owner is spared all kinds of employment-related paperwork and costs.

"We assess yachts [for property tax] if they are physically here most of the time, and we don't care where they are registered," says Greg Smith, county assessor/recorder/clerk. That tax is 1.1 percent of total valuation each year.

After searching her database, Vickie Wittmayer, property assessment specialist in Smith's office, says, "We have nothing under either KABOOM or David Copley." Thus far, the craft has avoided the property tax in San Diego, probably because it hasn't been anchored here.

As a nonresident of Washington, Copley would "trigger no tax liability" in that state unless he spent half a year there, according to Mike Gowrylow, spokesman for the Washington Department of Revenue. But would Copley moor in gloomy Seattle when he loves to romp with the jet set in sunny Monaco?

Copley would have to pay the use tax in California (8 percent of $33 million) unless the vessel was gone for a full year, according to John Hrabe, communications director for Board of Equalization member Michelle Steel. In any case, the Board of Equalization will not reveal use-tax records of individual Californians.

Copley's new yacht is not even registered with the U.S. Coast Guard, according to the Dona Jenkins Maritime Document Service, based in San Diego. Maybe Copley does not intend to bring his yacht into U.S. waters. That doesn't mean he will take a permanent vacation from his company. He could park the yacht and fly back at any time. Or do some work electronically, as many executives do.

Copley Press did not return calls for comment. Delta Marine refused to say anything beyond its press releases, which discussed the vessel's opulence but did not identify its owner.

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