Marina Floating Docks – Real or Personal Property? Part 1 of 3

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This question has arisen many times with marina tax appeal cases I have been involved in.  Today it came to me in the form of an email, so I figured it’s high time I put my thoughts together on the topic.

The fundamental problem is that there is no universal treatment by government officials.  One jurisdiction treats them as real property and the one next door does not.  When there is no “official” word on how a jurisdiction is to treat them, the presumption is that they are real property because marinas with fixed docks were assessed in this manner for decades prior to the advent of floating docks.  “It’s how we’ve always done it” is the usual response in these cases.

“I must have missed the part where that was MY problem”

Floating versus Fixed DocksOK, so I like quoting Spider-Man.  ‘Writer’s privilege.  Here are a couple of quotes from an email that highlight why this distinction is important:

The question arises as to the classification of floating docks as personal property or real property.The distinction is important because of recent tax changes making the tax rates on personal property substantially lower than real property.

We want to claim floating docks as personal property and our justification is that the IRS has determined that floating docks are equipment, not real property because they are not fixed and can be moved and are easily moved, etc.

  • Ownership of the bottom lands, the land underneath the water that comprises the basin, complicates the issue.  The docks are affixed in some manner to piles that are driven into the sediment.  In many lakes the basin land is owned by the property owner.  In others it’s owned by the municipality.  In Lake Michigan it’s owned by the State of Michigan.  The floating personal property has some method of being affixed to the real estate, so does that make it a fixture?
  • Depreciation schedules for personal and real property are quite different.
  • The IRS has ruled that floating docks are personal property.  So when a jurisdiction says it’s real property there’s an obvious disconnect.  ‘Seems like someone is wrong and no matter which, the property owner doesn’t receive the full benefit of any one classification.

The IRS Has Spoken

So I did a little research and stumbled across this little gem from the U.S. Court of Appeals (an appeal from the U.S. District Court in Massachusetts):

Case law as to whether floating docks are “real property” is not uniform–which is unsurprising because the issue arises under various statutes and in different contexts (sales, taxes, condemnation). A leading federal tax decision says that floating docks are not real property, Morgan v. Comm’r of Internal Revenue, 52 T.C. 478, 483 (Tax Ct. 1969); see also Rev. Rul. 75-178, 1975-1 C.B. 9, 1975 WL 34655. No Massachusetts case involving a floating dock has been cited to us, and case law in other jurisdictions is divided.

In the next part of this series, we’ll explore what tests can be used to determine if floating docks are personal property.

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