Many yacht brokers and even some maritime lawyers have used

so-called three-twelve closings, ostensibly to avoid liability for

Florida sales tax while preserving a yacht’s duty-paid or nonexported

status. In theory, a three-twelve closing occurs outside

Florida waters, but within the U.S. customs territory, that is,

within the band of waters located between three “geographic

miles” and twelve “nautical miles” from shore. There are at

least three problems with the three-twelve closing theory. First,

along much of Florida’s Atlantic Coast, state waters frequently

extend more than three geographic miles from shore, while on

Florida’s Gulf Coast state waters extend three leagues (or nine

nautical miles) from shore. Second, the U.S. customs territory

extends only three nautical miles from shore, not twelve nautical

miles. And third, merely transferring title in a yacht outside

the U.S. customs territory does not necessarily constitute an

“exportation” of the yacht, and thus may not result in the loss of

duty-paid or non-exported status.

In the United States, most coastal states claim a seaward

boundary three geographic miles from their respective Atlantic

or Pacific shore, and/or three marine leagues (nine nautical

miles) from their Gulf of Mexico shore. The Submerged Lands

Act, a federal law passed in 1953, reflects this system of

boundaries. The Florida Constitution, however, provides that

Florida state waters extend three leagues (nine nautical miles)

from shore on the Gulf Coast, and three geographic miles from

shore, or to the western edge of the Gulf Stream, whichever

distance is greater, on the Atlantic Coast.

It may seem bizarre for a state boundary to be moveable,

since the location of the western edge of the Gulf Stream

moves, but at least one Florida appellate court has upheld this

constitutionally described boundary. In Benson v. Norwegian

Cruise Line Ltd., 859 So. 2d 1213 (Fla. 3d DCA 2003), the Third

District Court of Appeal, in Miami, applied Florida law to an

alleged act of medical malpractice that occurred on a cruise

ship almost twelve nautical miles from shore, where the edge

of the Gulf Stream was fourteen nautical miles from shore on

the pertinent date. Similarly, under state law, Florida’s power

to impose sales tax extends to the western edge of the Gulf

Stream, in many cases considerably more than three geographic

miles from shore.

Unlike state waters, the U.S. customs territory extends only

three nautical miles from shore. On December 27, 1988,

President Ronald Reagan signed a proclamation extending the

U.S. territorial seas to twelve nautical miles for international

purposes, as allowed under international law. But that

proclamation, by its terms, did not affect any existing state or

federal law. Although the twelve-mile limit applies for certain

international purposes, U.S. Customs has repeatedly ruled that

the U.S. customs territory extends only three nautical miles from

shore. As a result, closings that take place anywhere more than

three nautical miles offshore occur outside of the U.S. customs

territory.

Does this mean that yachts delivered more than three nautical

miles offshore are being “exported” from the United States

and lose their duty-paid status? Not necessarily. The customs

regulations define “exportation” as “a severance of goods from

the mass of things belonging to this country with the intention

of uniting them to the mass of things belonging to some foreign

country.” 19 C.F.R. § 101.1. The regulation articulates two

essential elements of “exportation”: (i) a severance of goods from

the mass of things belonging to the United States, and (ii) an

intention to unite them to the mass of things belonging to some

foreign country. Both elements must exist before there is an

“exportation” for customs purposes. The delivery of a yacht outside

the U.S. customs territory may constitute a severance of the yacht

from the mass of things in this country, which may satisfy the first

element of the definition of exportation. But it does not satisfy

the second element unless the circumstances demonstrate an

intention to unite the yacht to the mass of things belonging to

another country.

For example, if a yacht departs from a U.S. port, a closing occurs

outside of the U.S. customs territory, and the yacht returns to

the same U.S. port without being entered or offered for sale or

charter in any foreign country, Customs will probably conclude,

absent contrary indications, that there was no intention to unite

the yacht to the mass of things in another country, and thus no

“exportation,” and no loss of duty-paid or non-exported status.

On the other hand, if the sale closes outside the U.S. customs

territory and the yacht proceeds to a foreign country, or the buyer

immediately offers the yacht for sale or charter in a foreign

country, it would be much more difficult for the buyer to prove that

the buyer did not intend to unite the yacht to the mass of things in

that foreign country.

The upshot for buyers is that, if the goal is to avoid Florida sales

tax while preserving a yacht’s duty-paid status, there is no

particular need, from a Customs duty perspective, to close less

than twelve nautical miles from shore. For purposes of preserving

a yacht’s duty-paid or non-exported status, the key is to refrain

from doing anything that suggests an intention to unite the yacht

to the mass of goods belonging to another country. The yacht

should therefore return to a U.S. port immediately after closing

and should not be offered for sale or charter in any other country.

The most critical thing to remember, however, is that to avoid

liability for Florida sales tax, the closing should be more than nine

nautical miles offshore, if in the Gulf of Mexico, or if in the Atlantic,

more than three geographic miles off the coast, or seaward of the

western edge of the Gulf Stream, whichever distance is greater.

Mark Buhler is the principal of Buhler Law Firm P.A., and

focuses his practice on yacht transactions. He is Board Certified

in Admiralty & Maritime Law by The Florida Bar. Mark can be

reached at mark.buhler@earthlink.net and 407.681.7000. David

R. Maass is an associate at Alley, Maass, Rogers & Lindsay, P.A.,

in Palm Beach, Florida, where he focuses his practice on yacht

transactions. David can be reached at david.maass@amrl.com and

561.659.1770. This article is intended for general informational

purposes only and does not constitute legal advice.