Is doing Montana LLC RV Titling a wise practice or will it get RVers in trouble in their home states?
This is one of the longest-lasting controversies in the RV world and it really has to do with the fine line between tax avoidance and tax evasion.
It's been raging pretty much ever since we started the RV Lifestyle back in 2012 and it continues to be a topic we are asked about all the time.
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.
The Montana RV titling Scheme Explained
This Montana scheme is very appealing to many.
Essentially, it works like this: You form an LLC business in Montana. It costs you about $1,000 to have a Montana law firm 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 your LLC “business.” That busness technically owns your RV. And your LLC is a Montana corporation.
The law firm then typically charges you about $150 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, unless, of course, your real home state IS Montana.
Most other states strongly frown on Montana LLC RV Titling
If your main residence in another state, the practice is often considered to be tax evasion – particularly in those states that have high RV sales taxes and costly RV license platesand titling fees.
So, what has been happening is that the high tax states that do impose use and sales taxes and high registration fees on RVs have been taking aggresive 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 for those who do Montana LLC RV Titling?
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.
If you drive your RV to another state every three months, they interpret that as keeping the motorhome in your home state for no more than 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-of-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.
Other states are not necessarily buying this!
The biggest bite in buying an RV in one of the high tax states comes in the form of a use tax, or sales tax.
And because many of these 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, many states have 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 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 and many other states say 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,
Montana is really promoting the Montana LLC RV Titling loophole
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.
Some states are going after their residents who use Montana LLC RV Titling
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 critics note 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 cruise RV storage facilities facilities and actively look for vehicles with Montana plates.
A very evenhanded and comprehensive review of all this can be found on the RV Dreams website,
A lot of RVers do get away with the Montana LLC RV Titling scheme. But…
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.
It's clear 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, the legal costs of defending yourself could far exceed what you saved on the taxes you avoided.
Besides this, many insurers have been known to frown at covering an RV that is titled in Montana when the owner of the LLC lives in another state.
The law can be tricky about Montana LLC RV Titling
Not every state that goes after its residents who use this tax avoidance strategy succeed.
In December 2007, a man named Robert Thomas bought a $351,800 RV at the Dixie RV Super Store in the city of Hammond in his home state of Louisiana.
But it wasn’t technically Thomas who made the purchase.
Instead, it was bought by a Montana company, one formed for the sole purpose of buying the RV.
Two years later, when the Louisiana Department of Revenue caught up with Thomas, officials said he owed $49,509 in Louisiana sales tax and penalties, but Thomas appealed — and won.
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.
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.
The hassle of always looking over my shoulder just isn't worth the tax savings.
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