Last week, someone untied the large yacht owned by Education Secretary Betsy DeVos' family. The prank resulted in several photos and videos posted of the big family boat and yet another conversation about the DeVos family's wealth. Those photos and videos showed one strange thing: a Cayman Islands flag instead of America's stars and bars. Upon further inspection, that yacht isn't the only family vessel flying a foreign flag.
According to David Sirota, VesselTracker reveals that the yacht is registered not in the United States but in the Cayman Islands. It's entirely possible that the DeVos family floated the fancy boat up the eastern coast of the United States, through rivers in Quebec City and Montreal, down into Lake Ontario, past Buffalo and into Lake Erie to Huron, Ohio. However, it doesn't seem likely.
Sirota revealed the true purpose of the foreign flag on the family's boats: a "flag of convenience" allows owners to call themselves foreigners for tax purposes. Maritime attorneys told the writer that the tactic is "a scheme that allows wealthy Americans to feign foreign status — and glean the lucrative benefits offered by offshore tax havens."
Classifying themselves as "foreigners" gets them out of paying sales tax and use levies while living under the protection of American police and the U.S. Coast Guard.
“If you want to come in and use the waters of a given state of the United States, the question is, how can you insulate yourself from getting hit for the use tax?” said attorney Michael T. Moore. “The answer is close and register offshore. If you close and register offshore, you aren’t subject to either a sales or a use tax. You are simply visiting the United States, and you are visiting under a privilege that is granted to certain countries in the world under what is called a cruising permit."
DeVos hasn't publicly called herself a person only "visiting" the United States, however.
"Those countries grant the privilege to U.S. flagged vessels, and the United States offers that reciprocal right to vessels flagged by those countries," Moore continued. "In practice, it means the permit allows you to go from port to port in different states without having to officially make entry and pay taxes to the states of the ports you visit.”
If it was registered in Grand Rapids, Michigan, for example, the yacht would be subject to a six percent tax totaling about $2.4 million.
Being a foreign vessel also scores DeVos cheaper labor costs and gets her out of strict inspection and safety standards.
Maritime attorney Mark J. Buhler explained the boat can be certified as a "seagoing motor vessel" or a "passenger vessel," which are typically reserved for offshore yacht registration.
“The most commonly used offshore yacht registries have comprehensive large yacht safety codes that were specifically developed for large yachts, whereas the U.S. Coast Guard regulations and inspection requirements applicable to ‘seagoing motor vessels’ or ‘passenger vessels’ were created many years ago, principally for vessels engaged in trade, and not really having large yachts in mind," Buhler noted. "Those requirements do not translate well to yachts, and most yachts are simply not designed or built to those particular standards.”