A commercial vessel of at least five net tons pays $133 for its initial federal Certificate of Documentation and $26 a year to renew it, and its corporate owner may separately elect the federal tonnage tax, which replaces ordinary corporate income tax on shipping profits with a small “notional shipping income” figure tied to each ship’s net tonnage. Vessel registration fees and tonnage tax are two different obligations that share only the word “tonnage”: one is a Coast Guard documentation charge, the other an Internal Revenue Code election under Subchapter R. Both matter, and the compliance penalties on each side are steep enough to justify getting them right.
Which Vessels Must Be Federally Documented
Any vessel of at least five net tons engaged in coastwise trade, the fisheries, or certain other regulated activities must be documented with the Coast Guard rather than registered with a state.1Office of the Law Revision Counsel. 46 USC 12102 – Vessels Requiring Documentation Vessels under five net tons can operate in the same trades without federal documentation as long as they meet other legal requirements, and recreational vessels that meet the tonnage threshold may be documented voluntarily. Owners of smaller recreational and commercial craft register with a state agency instead; those fees are set by state law and vary widely.
Documentation is handled by the National Vessel Documentation Center, a division of the Coast Guard.2United States Coast Guard. National Vessel Documentation Center Owners request one or more endorsements — coastwise, fishery, or registry — depending on how the vessel will be used.
NVDC Fee Schedule
The Coast Guard’s fee schedule, last revised in September 2025, is modest compared with what most first-time applicants expect.3United States Coast Guard. National Vessel Documentation Center Table of Fees
- Initial Certificate of Documentation: $133, valid for one year, for both commercial and recreational vessels.
- Annual renewal: $26 per year. Recreational owners can prepay up to five years at once for $130.
- Late renewal within 30 days of expiration: $5 surcharge on top of the $26.
- Exchange of documentation (ownership change or endorsement change): $84.
- Trade endorsements: $29 coastwise, $12 fishery, no additional fee for registry or recreational. When multiple endorsements are requested together, only the highest single fee is charged.
- Filing a mortgage or related instrument: $4 per page.
- Recording a bill of sale: $8 per page.
- Special determinations, such as whether a wrecked or rebuilt vessel qualifies, run up to $555.
All fees are non-refundable. A renewal received more than 30 days after expiration cannot be handled as a late renewal; the owner has to refile for initial documentation at $133.4United States Coast Guard. Vessel Renewal Notification Application for Renewal CG-1280 The Certificate of Documentation itself must stay aboard the vessel and be available for examination by officers enforcing revenue laws.5Office of the Law Revision Counsel. 46 USC 12133 – Duty to Carry Certificate on Vessel and Allow Examination
Citizenship Requirements Before You Can Document
Federal documentation isn’t available to every owner. A vessel can only be documented in the United States if its owner qualifies as a U.S. citizen under maritime law, which is stricter than ordinary citizenship. For a corporation to document a vessel, a controlling interest must be owned by U.S. citizens.6Office of the Law Revision Counsel. 46 USC 50501 – Entities Deemed Citizens of the United States For coastwise trade the bar rises to 75 percent: at least 75 percent of the corporation’s stock must be held by U.S. citizens free of any trust or fiduciary arrangement favoring non-citizens, and at least 75 percent of the voting power must rest with citizens.
Corporate restructuring, mergers, or capital raises that shift ownership percentages can jeopardize existing documentation. Owners with foreign investors need to watch these thresholds continuously, not just at the time of first filing.
Who Qualifies for the Tonnage Tax Election
Under Subchapter R of the Internal Revenue Code, a corporation with large ships in international trade can elect an alternative tax regime instead of paying ordinary corporate income tax on its shipping profits. The appeal is predictability. Rather than paying tax on volatile shipping revenues, the company pays a fixed amount tied to fleet size.
To qualify, the corporation must operate at least one “qualifying vessel”: a self-propelled, U.S.-flag vessel of at least 6,000 deadweight tons used exclusively in U.S. foreign trade for the duration of the election.7Office of the Law Revision Counsel. 26 USC 1355 – Definitions and Special Rules Combination vessels that are part self-propelled and part towed can qualify if they meet the tonnage and flag requirements. On average during the tax year, at least 25 percent of the aggregate tonnage of the corporation’s qualifying vessels must be owned outright or chartered on bareboat terms.
Bareboat charters get special handling. A vessel chartered out on bareboat terms still counts as “operated” by the owner only if the charter is a temporary surplus arrangement of three years or less, or the vessel is chartered within a controlled corporate group and continues to be used in qualifying foreign trade by the ultimate charterer.8Office of the Law Revision Counsel. 26 U.S. Code 1355 – Definitions and Special Rules
How the Tonnage Tax Is Calculated
The tonnage tax works in two steps. First, calculate a “notional shipping income” based on each vessel’s net tonnage. Then apply the corporate tax rate to that figure. Notional income replaces actual shipping revenue in the tax calculation; it is not itself the tax.
Daily notional shipping income uses a two-tier formula based on net tonnage — the internal cargo and passenger volume, not total displacement:9Office of the Law Revision Counsel. 26 U.S. Code 1353 – Notional Shipping Income
- First 25,000 net tons: 40 cents per 100 tons per day.
- Net tonnage above 25,000: 20 cents per 100 tons per day.
Multiply the daily notional income by the number of days the vessel operated in U.S. foreign trade during the tax year to get the annual figure. That annual amount is then taxed at the highest corporate rate under Section 11 of the tax code, currently a flat 21 percent.10Office of the Law Revision Counsel. 26 USC 1352 – Alternative Tax on Qualifying Shipping Activities
A concrete example makes the mechanics clear. A 30,000-net-ton vessel operating 365 days in foreign trade generates daily notional income of $110: 25,000 divided by 100, times 40 cents, plus 5,000 divided by 100, times 20 cents. Over a full year that comes to $40,150 of notional shipping income. Twenty-one percent of $40,150 is about $8,432 in tax. For a ship generating tens of millions in actual freight revenue, the savings against ordinary corporate tax are the entire point of the election. The net tonnage figure used in the calculation comes from the vessel’s International Tonnage Certificate (1969).
What Income the Election Shelters
Not all revenue from a shipping corporation qualifies for the favorable treatment. Subchapter R sorts activities into three tiers with caps on the non-core categories:11Office of the Law Revision Counsel. 26 USC 1356 – Qualifying Shipping Activities
- Core qualifying activities: carrying cargo and passengers in foreign trade. No cap.
- Secondary activities: related services that support the core business. Gross income qualifies only up to 20 percent of core activity income; anything above that goes back to ordinary corporate rates.
- Incidental activities: minor ancillary operations. Income qualifies only up to 0.1 percent of core activity income.
For corporate groups that elect together, the percentage limits are applied as though the group were a single entity, then allocated among the members. A shipping company with substantial port-services, leasing, or consulting revenue needs to track these categories throughout the year, because income above the caps loses the notional treatment.
Making, Keeping, and Revoking the Election
A qualifying vessel operator makes the election on the form prescribed by the IRS. Once effective, the election covers that tax year and every year after until the company terminates it.12Office of the Law Revision Counsel. 26 USC 1354 – Alternative Tax Election, Revocation, Termination It’s an open-ended commitment, not a year-by-year decision.
Revocation is allowed but carries a cost. A company that revokes the election, or a successor to that company, cannot re-elect for at least five tax years after the first year the termination takes effect, unless the IRS grants special consent. Timing matters within the year of revocation too. A revocation filed on or before the 15th day of the fourth month of the tax year applies retroactively to the start of that year; one filed after that date doesn’t take effect until the following year. Filing is done on IRS Form 8902, attached to the corporation’s annual return.13Internal Revenue Service. Instructions for Form 8902 – Alternative Tax on Qualifying Shipping Activities
Tonnage Duties on Foreign Vessels
The Subchapter R tonnage tax is separate from the tonnage duties that U.S. Customs and Border Protection collects on foreign-flag vessels entering U.S. ports. Those duties apply per entry regardless of any income tax election:
- 2 cents per net ton per entry, capped at 10 cents per ton per fiscal year, for vessels arriving from nearby foreign ports in North America, Central America, the Caribbean, and surrounding island groups.14eCFR. 46 USC 60301 – Regular Tonnage Taxes
- 6 cents per net ton per entry, capped at 30 cents per ton per fiscal year, for vessels arriving from all other foreign ports.
U.S.-flag vessels, recreational vessels, and barges are exempt. The United States also waives special tonnage taxes and light money for vessels from countries that don’t impose equivalent charges on American ships.15U.S. Customs and Border Protection. Tonnage Duties on Foreign Vessels
Penalties for Non-Compliance
Operating a vessel without valid documentation, or violating any provision of the federal documentation chapter, carries a civil penalty of up to $15,000, and each day the violation continues counts as a separate offense.16Office of the Law Revision Counsel. 46 USC 12151 – Penalties Even a few weeks of undocumented operation can generate six-figure liability. The Coast Guard can also deny or revoke endorsements for unpaid civil penalties.17Office of the Law Revision Counsel. 46 USC Chapter 121 – Documentation of Vessels
On the tax side, a corporation that loses eligibility because a vessel no longer meets the qualifying standards or ownership thresholds slip falls back into standard corporate income tax on its shipping income. A voluntary revocation triggers the five-year lockout before the company can re-elect.12Office of the Law Revision Counsel. 26 USC 1354 – Alternative Tax Election, Revocation, Termination For most shipping corporations, five years of ordinary rates on shipping income translates into millions in additional tax compared with the notional method. Monitoring vessel operations, citizenship percentages, and the 25-percent ownership requirement throughout the year is cheaper than discovering a problem at filing time.