We will be buying a diesel pusher sometime in the next week or so and will be starting to go full time in June. Our mailing address will be in Kansas at my wifes cousin who will forward mail to us while we travel. We plan to remain KS residents for now and registered the new toad here. What are the pro's and con's of creating a MT LLC to save on taxes etc. Input would be appreciated. Thanks, Brad.
Cindy T said
05:48 PM Apr 23, 2012
In recent years, the state of Colorado really began cracking down on people who have RV's titled w/a Montana LLC, just to avoid taxes. The state went after quite a few people & collected money from them. Can't speak to what other states might be doing.
Cindy T
Howard said
05:55 PM Apr 23, 2012
Hi Brad,
A Montana LLC is not something you will ever see me recommend UNLESS one has a legitimate business for profit that owns an RV.
Most that set up Montana LLCs are using them simply to avoid sales taxes on RV purchases. That is "legal" in Montana, but almost all other states with sales taxes consider it to be tax fraud rather than legal tax avoidance. The law of the state of residency rules.
I have spoken to a few departments of revenue about this, and I have links to multiple newspaper articles from several states showing crackdowns on the practice. Some states even have whistleblower rewards for turning in neighbors with Montana plates on their RVs. Some states are searching storage units for Montana plates. And with states hurting for revenue, I only see more aggressiveness in the future.
A member of this forum that resides in Colorado, was charged with a felony (this is an interstate issue).
Now, with that said, many, many RVers have used Montana LLCs without a problem and they feel secure in the fact that Montana law firms set them up in the LLC. FAQ from prominent Montana law firm on their website:
Is this legal?
This process is legal as long as you meet and follow your state’s laws and regulations. The conditions and law vary from state to state. Virtually every state has statutes that can make this available to you. Please contact our office for more information regarding your state.
It is correct that there are state statutes that can be used to make the practice legal under the strict letter of the law. So I can't go as far as to say the practice is "illegal", but there are certainly risks involved and some states do consider it illegal.
Most of the time, to make it "legal" the statures require the RV being kept outside of the state of residency for certain periods of time. The specific requirements are easier for full-timers to comply with because they don't have to bring their RVs into their state of residence (or only rarely), they are much less conspicuous, and they rarely park in places for a long period where they might be questioned or turned in.
However, there is still risk and I wouldn't want to bet on a non-Montana court giving much weight to a Montana attorney's interpretation of the law in a non-Montana state. Courts are political entities as well as legal entities, and I doubt many of them would say the applicable statutes were intended to create loopholes to avoid significant state sales taxes.
I have seen one court case where the RV owner won. He did the LLC in Montana while he was a resident of Florida. He then changed his residence to Michigan where he was originally from and he was taken to court in Michigan. The reason he won was because his purchase was at the time he was a Florida resident. The court said Florida is who should have sued him. They didn't rule in his favor because they determined the avoidance of sales tax was "legal", but rather because he wasn't a Michigan resident at time of purchase. He won, but he still had to go to court because he lived in Michigan and had Montana plates on his motorhome.
Of course there are other issues. Sometimes the LLC creation and annual filing fees to keep it going eventually add up to the sales tax saved so there is no net savings. It can be difficult to insure or finance an RV titled in the name of a Montana LLC.
Pros:
Significant sales tax savings on expensive RV purchases
Cons:
Legal and financial risk (increased significantly if parking or storing RV for long periods of time in state or residence)
Even if you follow everything the LLC creator tells you to do, there is still risk a court will disagree; Even if you ultimately win, nobody wants the hassle and expense of going to court
LLC creation and maintenance may be more hassle and may cost more in the long run than it's worth
Many financial institutions won't finance an RV titled in the name of an LLC and especially a Montana LLC
Many insurers won't insure an RV titled in the name of an LLC and especially a Montana LLC
There is no doubt that it is appealing to save $18,000 on a $300,000 diesel pusher purchase. But I don't like use of the Montana LLC solely for that purpose due to the cons above. That's just me - hundreds of RVers that have used the Montana LLC to avoid sales taxes and never had an issue will vehemently disagree. But you posted in the "Ask Howard" forum, so there's my answer.
Brancy said
07:48 PM Apr 23, 2012
Thanks for the quick response. I thought there could be substantial drawbacks and you pointed them out clearly. We will be registering in Kansas. Thanks again. Brad, I plan to get an insurance quote through the agency you recomend also
rpriest500 said
11:41 PM Dec 31, 2013
If one doesn't own any property, and never has owned any property for over 15 years (renting), how does that effect the liability of a Montana LLC? Total purchase value of $20,000 Travel Trailer and $10,000 to upgrade tow vehicle. Then full-time RV'ing. Only income is Social Security. Will use photography as a reason for LLC.
Rick
Howard said
06:06 AM Jan 1, 2014
Rick,
Let's make sure I'm answering the right question. You asked about the "liability of a Montana LLC". I'm assuming you mean the "risk" of using a Montana LLC, but just in case you mean "liability" in the context of using an LLC in general, I'll address that too.
First, an LLC is a "limited liability company" (a legal entity recognized in all states) and is used to protect you personally from liability of your business. In theory, if you set up a legitimate business and someone files a lawsuit against the business, you would be protected personally from any liability resulting from the lawsuit. However, there is a theory of law called "piercing the corporate veil" in which a court may determine that the LLC is nothing more than a "shell" or a "façade" and still impose personal liability on the LLC owner if, in effect, there really is no difference between the actions of the LLC and the owner. An LLC is more likely to provide liability protection for owners of businesses that have employees and storefronts or offices and that have complete separation of the business from their personal lives.
For our personal situation where our businesses and our personal lives as full-timers are so intertwined, we have determined to remain sole proprietors because, in my opinion, I think there is a good chance an LLC would be tossed aside in court if it ever came to that. I'd rather not have the expense and hassle of maintaining an LLC that I'm not sure would provide the protection it is designed to provide. If our businesses and assets grow, we may later make our business more "formal" and choose the LLC form of business IF we feel our potential liability increases to a tipping point where it makes more sense.
Now, specifically addressing the Montana LLC. The owning of property or not has no effect on the risk of using a Montana LLC. Obviously, the fewer assets you have, the less someone will be interested in suing you, but that has nothing to do with whether the LLC is in Montana or not.
The risk of your resident state suing you for setting up a Montana LLC and registering your RV there would be lower because 1) you intend to run a legitimate business under the LLC, and 2) due to the low cost of your travel trailer. If you plan to set up an LLC anyway for a legitimate business purpose as you indicate, then you should have no legal issue. Also, your resident state would probably be less likely to care about the sales tax they are "losing" on a $20,000 trailer as opposed to a half million dollar motorhome. Of course, setting up an LLC and paying the annual fees and filing the annual reports will cost you more than the sales tax you would save by titling the RV under the LLC. From a practical standpoint, in my opinion only, it wouldn't be worth the hassle just to save $1,200 in sales tax, but if you are going to set up a legitimate business LLC anyway AND it is financially appealing to do so in Montana rather than your resident state, then it might be worthwhile to title your RV under the LLC, but you still may have issues financing and insuring the RV if it is owned by an LLC.
Clearly, I have trouble with short answers on the issue of Montana LLCs. :)
In recent years, the state of Colorado really began cracking down on people who have RV's titled w/a Montana LLC, just to avoid taxes. The state went after quite a few people & collected money from them. Can't speak to what other states might be doing.
Cindy T
Hi Brad,
A Montana LLC is not something you will ever see me recommend UNLESS one has a legitimate business for profit that owns an RV.
Most that set up Montana LLCs are using them simply to avoid sales taxes on RV purchases. That is "legal" in Montana, but almost all other states with sales taxes consider it to be tax fraud rather than legal tax avoidance. The law of the state of residency rules.
I have spoken to a few departments of revenue about this, and I have links to multiple newspaper articles from several states showing crackdowns on the practice. Some states even have whistleblower rewards for turning in neighbors with Montana plates on their RVs. Some states are searching storage units for Montana plates. And with states hurting for revenue, I only see more aggressiveness in the future.
A member of this forum that resides in Colorado, was charged with a felony (this is an interstate issue).
Now, with that said, many, many RVers have used Montana LLCs without a problem and they feel secure in the fact that Montana law firms set them up in the LLC. FAQ from prominent Montana law firm on their website:
Is this legal?
This process is legal as long as you meet and follow your state’s laws and regulations. The conditions and law vary from state to state. Virtually every state has statutes that can make this available to you. Please contact our office for more information regarding your state.
It is correct that there are state statutes that can be used to make the practice legal under the strict letter of the law. So I can't go as far as to say the practice is "illegal", but there are certainly risks involved and some states do consider it illegal.
Most of the time, to make it "legal" the statures require the RV being kept outside of the state of residency for certain periods of time. The specific requirements are easier for full-timers to comply with because they don't have to bring their RVs into their state of residence (or only rarely), they are much less conspicuous, and they rarely park in places for a long period where they might be questioned or turned in.
However, there is still risk and I wouldn't want to bet on a non-Montana court giving much weight to a Montana attorney's interpretation of the law in a non-Montana state. Courts are political entities as well as legal entities, and I doubt many of them would say the applicable statutes were intended to create loopholes to avoid significant state sales taxes.
I have seen one court case where the RV owner won. He did the LLC in Montana while he was a resident of Florida. He then changed his residence to Michigan where he was originally from and he was taken to court in Michigan. The reason he won was because his purchase was at the time he was a Florida resident. The court said Florida is who should have sued him. They didn't rule in his favor because they determined the avoidance of sales tax was "legal", but rather because he wasn't a Michigan resident at time of purchase. He won, but he still had to go to court because he lived in Michigan and had Montana plates on his motorhome.
Of course there are other issues. Sometimes the LLC creation and annual filing fees to keep it going eventually add up to the sales tax saved so there is no net savings. It can be difficult to insure or finance an RV titled in the name of a Montana LLC.
Pros:
Cons:
There is no doubt that it is appealing to save $18,000 on a $300,000 diesel pusher purchase. But I don't like use of the Montana LLC solely for that purpose due to the cons above. That's just me - hundreds of RVers that have used the Montana LLC to avoid sales taxes and never had an issue will vehemently disagree. But you posted in the "Ask Howard" forum, so there's my answer.
Rick
Rick,
Let's make sure I'm answering the right question. You asked about the "liability of a Montana LLC". I'm assuming you mean the "risk" of using a Montana LLC, but just in case you mean "liability" in the context of using an LLC in general, I'll address that too.
First, an LLC is a "limited liability company" (a legal entity recognized in all states) and is used to protect you personally from liability of your business. In theory, if you set up a legitimate business and someone files a lawsuit against the business, you would be protected personally from any liability resulting from the lawsuit. However, there is a theory of law called "piercing the corporate veil" in which a court may determine that the LLC is nothing more than a "shell" or a "façade" and still impose personal liability on the LLC owner if, in effect, there really is no difference between the actions of the LLC and the owner. An LLC is more likely to provide liability protection for owners of businesses that have employees and storefronts or offices and that have complete separation of the business from their personal lives.
For our personal situation where our businesses and our personal lives as full-timers are so intertwined, we have determined to remain sole proprietors because, in my opinion, I think there is a good chance an LLC would be tossed aside in court if it ever came to that. I'd rather not have the expense and hassle of maintaining an LLC that I'm not sure would provide the protection it is designed to provide. If our businesses and assets grow, we may later make our business more "formal" and choose the LLC form of business IF we feel our potential liability increases to a tipping point where it makes more sense.
Now, specifically addressing the Montana LLC. The owning of property or not has no effect on the risk of using a Montana LLC. Obviously, the fewer assets you have, the less someone will be interested in suing you, but that has nothing to do with whether the LLC is in Montana or not.
The risk of your resident state suing you for setting up a Montana LLC and registering your RV there would be lower because 1) you intend to run a legitimate business under the LLC, and 2) due to the low cost of your travel trailer. If you plan to set up an LLC anyway for a legitimate business purpose as you indicate, then you should have no legal issue. Also, your resident state would probably be less likely to care about the sales tax they are "losing" on a $20,000 trailer as opposed to a half million dollar motorhome. Of course, setting up an LLC and paying the annual fees and filing the annual reports will cost you more than the sales tax you would save by titling the RV under the LLC. From a practical standpoint, in my opinion only, it wouldn't be worth the hassle just to save $1,200 in sales tax, but if you are going to set up a legitimate business LLC anyway AND it is financially appealing to do so in Montana rather than your resident state, then it might be worthwhile to title your RV under the LLC, but you still may have issues financing and insuring the RV if it is owned by an LLC.
Clearly, I have trouble with short answers on the issue of Montana LLCs. :)