The number of out-of-state RV owners who chose to license their RVs in Montana has reached 20,000 and is growing daily.
Out-of-state residents have been saving tens of thousands of dollars on taxes by registering their high-priced vehicles in Montana for years and the loophole is also bringing in big bucks for the state, KLXF-TV, Butte, Mont., reported.
Thousands of non-residents legally slap Montana plates on their vehicles, even if they live in Florida or California, It’s a practice that Missoula attorney John Bennett calls tax planning and while others may call it cheating, it’s a perfectly legal practice.
“If you’re a non-resident of Montana and you desire to register a vehicle here, of course tax-free, a route you can go is to establish a Montana business entity … and that entity can legally register a vehicle in Montana,” Bennett said.
Since the RVs or cars are technically owned by Montana limited liability companies (LLCs), the driver avoids paying sales tax. Creating the dummy companies also allows the out-of-state residents to save upward of 10%, or up to $30,000 to $40,000, depending on the price of the vehicle.
“Recently, a client purchased a vehicle and the purchased price was reportedly between $30 million and $40 million. The vehicle is going to end up in California, and the vehicle had to comply with the exemption from California’s laws on the date of purchase. I believe the car was stored in Montana for the test year. So, if it was 40 million, the client saved around $4 million. That was a good hit,” he said.
Lawyers are making money, dealerships are gaining out-of-state business and the state earns more registration revenue. But, the bulk of the work is being done at the courthouse by county employees.
The Missoula County Treasurer’s Office has daily standing appointments with three separate law firms in Missoula to deal with all the paperwork. It’s a process that Missoula County Deputy Kim Seeberger says her staff has adapted to.
“I think, in the beginning, until we were able to work through the workload change, and it is growing more and more, we had to do some adjustments. But as I said, the law offices that are involved with this heavily have been great working with us and know the impact it has on our office,” Seeberger said.
Critics argue Montana and its county employees should not be helping out-of-state residents avoid paying taxes, but Bennett says in the end the state makes more than it spends paying staff.
“A lot of people don’t like the idea that non-Montanans are making use of a Montana law to minimize their taxes. My argument is a fiscal one … in my estimation, this brings in $10 million to Montana that we otherwise wouldn’t have,” Bennett said.
Bennett also estimates that around 20,000 LLCs have been set up over the years in Montana.
Question: Federal Way reader Elbert Field came across an advertisement in Hemmings Motor News that gave him pause. The ad from Deer Creek Corporate Services promises: “Register your next vehicle in Montana & save thousands! Pay NO SALE TAX! Lowest rates in 50 States!”
“Pay no sales tax on a vehicle?!” wrote Field. “Does this ad make sense?”
He does recall a few years back a neighbor with a large motor home had Montana plates, presumably to save money. But he wonders if it’s legitimate.
Answer: A quick Internet search for “Montana Vehicle Registration” reveals a cottage industry of outfits in the Treasure State, promising big savings on vehicle registration. For a fee, they will set up an out-of-state buyer as a limited liability corporation with a Montana address, which allows them to avoid paying sales tax and license fees in their state of residence.
If you believe the sales pitch, it’s a tax loophole big enough to drive your Beaver Marquis Class A luxury coach through.
Don’t believe it, says the Washington State Department of Revenue.
“This is an area over which we have been concerned for some time, and have been pursuing individuals who have registered their motor homes in Montana using LLCs,” says Revenue spokesman Mike Gowrylow. “We have contended that this practice is illegal, and have successfully pursued some individuals who have tried this subterfuge to avoid paying sales tax.”
A new provision in the law passed in the latest legislative session was designed to help crack down on the tax dodge, Gowrylow said.
“This language clarifies the department’s authority to disallow such transactions and impose tax and penalties on anyone who is found forming out-of-state LLCs to avoid paying taxes due on such things as motor homes used in Washington by Washington residents,” he said.
The department’s tax discovery agents pursue tips from law enforcement agencies and the general public about possible tax scofflaws. (You can report a suspected violator online at www.dor.wa.gov/content/ContactUs/email/reportfraud.aspx.
Be warned: The recent legislation also stiffened penalties. “Someone caught using a Montana LLC to avoid paying sales tax could face a total 60% penalty plus interest,” Gowrylow said.
Montana is known as Big Sky Country, but it’s getting a national reputation as big tax-loophole country as well, according to The Enterprise, Brockton, Mass.
Run “Montana LLC” through an Internet search engine. You’ll find a cottage industry of companies willing to help you create a limited liability corporation in Montana for the purpose of buying and registering a new motorized RV under the LLC’s name.
By registering the RV in Montana, the buyer avoids Massachusetts sales and excise taxes, which Montana does not charge.
There’s nothing illegal about the practice on the Montana end.
And everything is fine on the Massachusetts end until the RV is garaged here for 30 days. At that point it’s considered a Massachusetts vehicle and is subject to state taxes, which, for a $200,000 luxury RV, total about $17,500.
In contrast, the cost of doing an LLC is about $1,500.
Massachusetts officials have caught onto the practice – finding such vehicles in Bridgewater and Middleboro, among other communities – and are starting to crack down.
The state inspector general issued an initial report last month detailing 32 RVs that had been purchased by 23 different Montana LLCs, had Montana license plates, but were garaged in the Bay State.
The Department of Revenue has been following up and sending out state sales-tax bills to offending parties. By last week, the department had collected approximately $138,000 of the $250,000 in bills it had sent to 30 Massachusetts residents. The department had another $150,000 worth of bills it had not yet sent out.
“It’s discouraging to see a state set up something like this, which is basically a way to shelter tax evasion,” said Bob Bliss, spokesman for the Massachusetts Department of Revenue.
Tracking down the illegitimate registrations is not easy. Montana law shields the members of an LLC from public disclosure.
In Massachusetts, both the members of an LLC and their agent, or bookkeeper, are matters of public record. In Montana, however, only the name of the agent is public. So out-of-state residents can hire a Montana business to be their agent and shield themselves from scrutiny.
The Registry of Motor Vehicles is supposed to start notifying local communities to begin assessing local excise taxes on the offending RVs.
The inspector general’s report included images of scofflaw RVs parked in Bridgewater and Middleboro, but neither town had been contacted as of last week, officials said.
Middleboro’s assessor-appraiser, Barbara Erickson, said that RVs don’t make a big portion of the town’s excise tax revenue. But even one $200,000 luxury RV would end up paying almost $11,000 over five years.
“That is very significant, … especially in a time when communities are trying to struggle to get every bit of revenue they can,” she said.
Marty Hanoud, owner of Marty’s USRV Inc. in Berkley, said he’s seen some people register using a Montana RV, but only rarely.
Most RVs that Hanoud handles are not the motorized $200,000-to-$300,000 variety, however. They are the the pull-behind type that run $20,000 to $50,000.
“A dealer licensed in Massachusetts should not encourage a person to do an LLC and avoid their taxes. But we can’t be the policeman,” he said.
Hanoud also said the major banks that his dealership uses won’t finance a purchase made by an LLC, and most people don’t have the money to pay cash.
“It’s not that easy. I think the state is blowing it out of proportion,” he said.
Just how big the problem is isn’t actually known. Because of the difficulty in tracking the paperwork, it’s hard for the inspector general’s office to get a good estimate of how many illegal registrations there are.
And their advice for local officials is to simply keep their eyes open. If police see an RV with Montana plates parked in their town for more than 30 days, chances are it’s not Uncle Hank coming to visit.