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Montana LLC RV Titling: Tax avoidance or Tax Evasion?

Roadtrekingmike

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Montana-state-flag-license-plate-3589-300x151.jpg

One of the biggest controversies in the RV world these days has to do with the fine line between tax avoidance and tax evasion.

I’m talking about the practice of setting up an LLC business in Montana to purchase a motorhome, thus avoiding sales and use tax and often stiff registration fees in the owner’s home state. Thousands of RV owners around the country do this and dozens of Montana legal firms specialize in making it happen.

I live in a state that has very high taxes. As I am shopping around to upgrade my 2006 RV to a new model I have come face-to-face with the huge tax burden my state (Michigan) imposes. When I bought the 2006 RV in April, I paid some $5,000 in sales tax and registration fees. Gulp.

If I trade in that unit and buy a new motorhome, Michigan will hit me again. And unlike many other states which tax only the difference between the trade-in and the new model, Michigan will tax the entire value of the sale. Unfair? Absolutely. Outrageous? Yes. Legal? Unfortunately, it is legal for a state to be a tax gouger. And I live in such a state.

So this Montana scheme is very appealing. Essentially, it works like this: You form an LLC business in Montana. It costs you about $1,000 to have one of the Montana law firms set up your LLC and do the registration and titling paperwork and send you back the Montana license plates. Because Montana has no sale tax on an RV, your only cost is the $1,000 to set up the business that technically owns the RV, a Montana corporation, and the $150 or so the law firm charges every year to renew your registration and LLC charter.

All this is perfectly legal in Montana. Indeed, forming LLCs and registering RVs like this is a big business out there.

The rub comes in your home state.

The high tax states that do impose use and sales taxes and high registration fees on RVs quickly took steps to counter the scheme by writing laws and regulations that make it very difficult to take advantage of the plan. In my state, for example, Michigan Compiled Law sections 257.215, 257.216, and 257.217 require that “a nonresident owner of a pleasure vehicle otherwise subject to registration under this act shall not operate the vehicle for a period exceeding 90 days without securing registration in this state.”

Is there a loophole there? Some Montana law firms say there is. They say if you take the motorhome out of your home state once every three months, you’re legal. They interpret that as keeping the motorhome in your home state for 90 consecutive days, So, if you head out of state after 89 days, they claim, you’re good. When you return, you can stay another 89 days before you have to take an out state trip. Naturally, they caution the RV owner to keep detailed records that establish the motorhome’s whereabouts.

That’s how the Montana law firms insist you can avoid high registration fees.

The biggest bite in buying an RV in one of the high tax states like Michigan comes in the form of a use tax, or sales tax, currently 6% in Michigan. And because Michigan and other states have agreements to collect each other’s sales taxes, buying out of state alone is not the solution. As far as sales and use taxes on an RV, my home state has two provisions – one for non-residents, one for residents.

For non-residents, which the Montana LLC that “owns” the motorhome would technically be, an exemption to the tax would be allowed provided the motorhome is “purchased by a person who is not a resident of this state at the time of purchase and is brought into this state more than 90 days after the date of purchase.” An LLC is considered a legal entity, able to buy and sell property. In other words, to avoid the Michigan taxes you would buy the RV out of state through the LLC and keep it out of state for three months. The issue here, though, is what would a court decide? If the LLC is in Montana but the owner of that LLC is in Michigan. what is the reasonable assumption here? Pretty obvious, don’t you think? The LLC in Montana is owned by a Michigan resident.

In that case, if the property is owned by a resident, Michigan says you must pay the tax unless the motorhome “is brought into this state more than 360 days after the date of purchase.” That means buy it out of state and travel anywhere but your home state for a year.

You can clearly see by these legal restrictions that the other states don’t take kindly to Montana’s proffered loophole to potential RV owners. Just do a Google search on Montana LLCs and you’ll see how they are trying to drum up business by touting LLCs that allow you to buy “no sales tax motorhomes” or “tax free.”

That sort of exploitation only fuels the resolve of the high tax states to shut down the loophole.

Thus, Michigan, Colorado, California and a number of other states are very aggressive in hunting down RVs with Montana license plates and suing the owners for taxes and penalties. Some of the RV forums claim they have set up tip-lines with rewards for people who spot RVs with Montana plates parked in storage yards or driveways for long periods of time. Others say inspectors check out RV repair facilities and look for vehicles with Montana plates.

A very evenhanded and comprehensive review of all this can be found on the RV Dreams website,

I need to say here that a great many RVers have taken advantage of the Montana law with no issues. For fulltimers, who are gone for very long periods from their home states, it appears to be very workable, especially if those fulltimers have established residency in a low tax state like, say, Florida.

But for me, as I look at buying a brand new RV, I’m not going to go the Montana route.

I admit, the benefits of saving thousands of dollars in sales and use taxes are very tempting.

But as states scramble to shore up sinking deficits, I think we can be sure that pursuing RV owners with Montana plates is going to increase, not decrease. Even if you should be sued and won, I can guarantee the legal costs of defending yourself would far exceed what you saved on the taxes you avoided. Besides this, many insurers frown at covering an RV that is titled in Montana.

The big reason I am not going to go the Montana route should I buy a new RV is because, I think, it borders on the unethical. It’s clearly a tax dodge. As long as I live in Michigan, I am subject to its laws. And Michigan laws demand I pay a sales tax on my RV. I know, I know, some will say the Montana LLC is the legal owner. But I am the legal owner of the LLC. That means, in effect, I own the RV with Montana plates. And I live in high taxing Michigan. I may not like those laws, but my conscience just won’t let me do something that – to me – seems questionable.

Again, I understand that others see this differently and have and will decide otherwise. They very well may never be sued or have an issue. They may see no ethical dilemma. I don’t criticize them for their decision.

I just know my new RV – if and when I get it – will have Michigan plates.

The hassle of always looking over my shoulder just isn’t worth the tax savings.

There’s got to be another way. But that will have to be the subject of another post.



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I purchased a new MH in Colorado and while completing the paperwork I mentioned jokingly that I might set up an LLC because of the high tax. The Dealer said they no longer would make loans to LLC's as the State of Colorado recenly requested all their sales records specifically to go after LLC tax dodges.

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The confusion here is easy to understand. But one needs to remember, LLC's are PEOPLE... a legal person so "you" don't own squat, whoever owns the corporation does. You cant get pulled over and say "yea, some guy told me I could beat taxes this way"... you say "Hey, this isn't my couach, I just have the right to use it / rent it from tbe company that owns it" period. If you act like it is some big scam, dont be suprised you get treated that way. It is a legal maneuver ... in fact your LLC can be owned by anyone including another LLC.

Think of something you like to do... blogging about RVing, then have "RV News.LLC" "hire" you to go blog about RV's... this isn't hard unless you don't own the reality that the LLC is just another human.

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Montana LLC’s may have more advantages for some owners beyond those mentioned in roadtrekingmike’s blog noted. Obviously, each state plays by its own set of rules and that has to be carefully investigated from a legal standpoint. For instance, Wyoming appears to have a loophole that allows for a resident not to have to register in WY if the vehicle owner does not have WY income. When using an LLC for that purpose, it’s wise to carry a copy of the current legislation in the coach just in case someone gets curious. One can chose to use the MT approach just to avoid ridiculous and burdensome license fees even if they’ve paid sales taxes. (There may be more of a moral issue with sales tax avoidance for many.)

A 14yr. old coach I’m familiar with licensed in WY for $3,300 the first year and that tapers down to $850/yr. after six years and remains there so long as tagged in WY. MT licenses that unit for, about, $250 initially, tapering down to $100 after a few years. But, then it really gets good. After any vehicle is 10yrs. old (Or right from new for travel trailers and fifth wheels.) you can get a permanent tag and pay no further fees so long as you keep it registered in MT! (This also applies to all autos one chooses to register there.)

The cost to do this is really quite minimal. Yes, one can use the elaborate law firms that specialize in the process for a nice fee. But the process is so simple through the MT Secretary of State’s office that one could probably do it without legal assistance. I know of a lawyer friend that has done many for $250 plus the first years $250 registration and license fees. Once established, one can file the required LLC annual report and pay the $15 fee Online through the MT Sec. of State Website. One is not required to pay for a registration address for the LLC. You must have a valid address in the county in which you pay fees. That can be any friend or relative you might choose. All correspondence regarding your LLC is done by E-mail and license renewals are sent right to your home state address from the Deer Lodge, MT license center. Do make a note to include your LLC as an interested party on your insurance policy. It appears that most RV insurers are quite familiar with that item for obvious reasons.

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Hi:

FWIW I do not have a "dog" in this fight, I titled and tagged my rv in state that I live, California. It is interesting that FMCA, Good Sam and other ralies let these MT salesman have booths in there shows. They are pro's and spin a good yarn.

Wonder if they help if you get fined in states that are aggressively looking for these persons?

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There are other benifits that have not been brought up. In many cases your insurance is priced lower than in your State. Also, if you travel to Mexico, there is a 'one person one vehicle' rule. The LLC becomes another person.

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NYS has the 30 day rule also. And they make you jump through hoops to prove that you were not in the state. Fuel receipts, and the like, with the motorhome's license plate number on them and so on.

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Actually, there is more to it than a Montana LLC. When we purchased our last motor home we learned a lot about these issues.

The real estate reforms put in place after the meltdown also have an impactpn this issue. According to our lender, under the current laws, a lender (bank or otherwise) who grants a mortgage to purchase a home, MUST collect the first years taxes and some other real estate fees upon making the loan. The penalties for not doing so are fairly significant for the lender. There is a great deal of confusion among lenders and the government agencies enforcing these new rules about whether a motor home used as a full time residence constitues a "home" for the purposes of this law. The issue has been raised, but Congress has not seen fit to address the issue.

The lenders are faced with two questions: (1) is this purchase actually a mortgage for a home: and,(2) if it is, how do they collect the taxes and other fees when a motor home has a completely different set of fees from real property. SInce there are stiff penalties for not following the rules, it is financally much better for the lender to refuse to make the loan, rather than to risk the penalties.

I am a retired DMV manager from Oregon. We faced the questions about non-Oregon residents registering motorhomes Oregon to avoid taxes in other states for years. It is a legal morass with a lot of risks if you get caught. Just be aware that what ever state you are in, the agencies know which addresses are real places to live and which are "mail services." If you attempt to use a "mail service" address for a residence address you will ultimately be found out. And remember, IRS could care less where you live or what address you use. They are only interested in you paying taxes.

If you own a house or property to which you return - or plan to return - in a state, that state probably considers you a resident of that state for tax purposes. Under their laws, they can usually require you to pay vehicle taxes.

Actually, there is more to it than a Montana LLC. When we purchased our last motor home we learned a lot about these issues.

The real estate reforms put in place after the meltdown also have an impactpn this issue. According to our lender, under the current laws, a lender (bank or otherwise) who grants a mortgage to purchase a home, MUST collect the first years taxes and some other real estate fees upon making the loan. The penalties for not doing so are fairly significant for the lender. There is a great deal of confusion among lenders and the government agencies enforcing these new rules about whether a motor home used as a full time residence constitues a "home" for the purposes of this law. The issue has been raised, but Congress has not seen fit to address the issue.

The lenders are faced with two questions: (1) is this purchase actually a mortgage for a home: and,(2) if it is, how do they collect the taxes and other fees when a motor home has a completely different set of fees from real property. SInce there are stiff penalties for not following the rules, it is financally much better for the lender to refuse to make the loan, rather than to risk the penalties.

I am a retired DMV manager from Oregon. We faced the questions about non-Oregon residents registering motorhomes Oregon to avoid taxes in other states for years. It is a legal morass with a lot of risks if you get caught. Just be aware that what ever state you are in, the agencies know which addresses are real places to live and which are "mail services." If you attempt to use a "mail service" address for a residence address you will ultimately be found out. And remember, IRS could care less where you live or what address you use. They are only interested in you paying taxes.

If you own a house or property to which you return - or plan to return - in a state, that state probably considers you a resident of that state for tax purposes. Under their laws, they can usually require you to pay vehicle taxes. Many state also have rules about how long you can be in a state before you are legally considered to be a resident and automatically subject to their laws and fees. These range from 30 to 90 days or more and vary state by state.

Now what may be a bit of good news, but I do not know how courts are treating it. A few years ago, the State of California was sued over how it calculated residency - specifically for welfare payments. The US Supreme Court ruled in a very broad statement that was not limited to the welfare issue. that US Citizens are residents of the United States AND are residents of whatever state they say they are. Someone needs to follow up on what effect this ruling has on other state laws affecting residency.

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I seriously considered a Montana LLC before handing over $16,000+ dollars in sales tax. My decision was swayed by the fact that I would be driving an RV owned by a corporation (LLC) and technically would be required to have a CDL to operate. This means I cannot by-pass weigh stations and must keep a log of hours, penalties would be huge for not stopping. In addition, I show dogs and would have an added inconvenience of having to stop. A second option would be to establish residency in a state such as Texas or South Dakota. This has it's own hassles but are easier to stomach than a CDL. SD residency requires that you are resident in the state for one day/year., TX has similar requirements. Neither state has an income tax. Hassles if you own a brick and mortar in another state, as well as income tax owed in state of brick and mortar. Put you brick and mortar in a trust and rent from the trust is a work around.

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I have a Montana LLC. My motorhome has never been in the state I reside in, and never will be. My home state has no claim for sale tax on the motorhome

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All in all a very interesting discussion but are there any imperical facts? How many Montana LLC's are we talking about? How many of those have/are being investigated? How many have been prosecuted? What dollar amount or percentage is the fine?

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Interesting thread. There are a lot more facets to being an LLC beyond taxes. In the event that someone wanted to sue you, they can only get as much as is in the corporation.

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Although the sales tax amount is initially large, remember that you can deduct it as an itemized deduction on your Federal Form 1040 in the year you purchased your RV.

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