"Hey, where are we anyway?"


"So how come all the boats say Wilmington, Delaware?"

It's one of the oldest tax dodges. Once it was the province of the very rich, but in recent years the boating public has been busily keelhauling state tax collectors by grasping this concept: No taxation with documentation.

Navigating New England waters is coming to be an exercise in boredom for folks who enjoy keeping track of the home ports of the mighty yachts that pass.

The yachts all say the same thing on their transoms: Delaware, Delaware, Delaware.

Most of these boats have never visited Delaware waters and never will. But by incorporating in Delaware and documenting vessels with a Delaware and documenting their vessels with a Delaware city as home port, their owners can escape state taxes and registration fees. And that's not peanuts.

Here's how it works:

You are a Hartford insurance magnate who just realized a dream by purchasing a brand new 40-foot sloop for $100,000. As all yachtsmen know, the spending has just begun.

Next step is registering the boat with the state. When you do, you must show proof that you have paid state sales tax on your purchase. That's 7 1/2 percent in Connecticut, or $7,500, so ante up, big spender.

Connecticut also has an annual personal property tax payable to the town or city in which you live. According to Charlene Bergstrom of the Connecticut Marine Trades Association, that tax should come to between $1,500 and $4,500 a year, depending on the tax rate in your town.

Now the good news: There's an option.

Just call one of 15 or more registered agents in Wilmington and other Delaware cities that will help you make yourself a Delaware corporation.

Natalie McHugh works for such an agency in Wilmington with the cloudy name of "The Company Corporation." She played out the scenario.

The initial cost is $105, she said. That includes $80, the fee for her company to acquire, send along and later file the papers required to establish a corporation in Delaware, and $25, the fee for acquiring, shipping out and filing the papers for that corporation to document a vessel.

"There is no statement required about the purpose of the corporation, so it's perfectly legal to establish a corporation in Delaware just for the purpose of documenting a boat here," she said.

So $105 makes you a Delaware coporation and your yacht (your corporation's only asset) a Delaware-documented boat with a Delaware home port. There is no sales tax or personal-property tax in Delaware. To keep the papers up, year-to-year, The Company Corporation offers a Delaware mailing address at an additonal cost $35 the first year, $58 every year thereafter. Renewal of Coast Guard documentation is free, so the billing end there.

To document a vessel, which essentially means registering it with the Coast Guard instead of with home-state officials, the boat must exceed five tons net, which correlates out to about a 26-foot boat.

For years wealthy Americans have known about documenting boats, airplanes and even motor vehicles in Delaware to escape state taxes. But according to Jack Starkey, the Coast Guard documentation officer in Wilmington, in the last three or four years more and more middle-level boaters have caught on.

He says that's largely the effect of aggressive advertising campaigns outfits like the Company Corporation. The campaigns clearly are paying off. The yearly volume of new documentations Starkey's unit handles has increased from 1,120 in 1976 to almost 4,000 last year.

"We're swamped," he said.

If this all seems very jolly for boat owners, it evokes no mirth among state tax-collectors.

Most documentation requests for pleasure boats come from the northeastern states, Starkey said, where "millionaires are a dime a dozen" and tax rates are high.

The tax-collectors are catching on, though: Rhode Island has instituted a catch-the-cheats program that's working, and this spring tax-collectors from all along the Eastern seabord visited Providence to find out how it functions.

Rhode Island Tax Administrator John Norberg said, "We've been making probably the widest effort of any state. We've identified hundreds of boats that were documented out-of-state to avoid taxes, and we've collected millions of dollars in unpaid sales and use tax revenues."

Norberg says it's his agency's view that the documentation-in-Delaware scheme is a blatant effort to sidestep justifiable state taxes, and so far that theory has held up in test court cases.

Now other states are joining in, notably Connecticut and New York, with a pledge to share information on suspected tax cheats reciprocally when they come up with it.

It may spell the eventual end of the port of Wilmington as the yachtsman's best shelter -- a tax shelter.

Meanwhile, the yachts whoosh past with the names of their imaginary home ports plastered across the stern. And in the marinas a growing legion of lawmen poke and prowl, looking to end the free ride.