We are going to the PA Show this week and will probably be ready to buy soon. I was thinking of forming a LLC ( in Montana possibly ) but was wondering should I wait till I'm ready to buy the toad also. Then what about registering the vehicles elsewere, such as Texas. If you still own property in your current home state, can you reister your vehicles out of state?

We probably won't sell the house until early next year.

Roy

I'll probably get a lot of responses along the order of "It's perfectly legal and we've never had a problem", but to say I am not of fan of LLCs to avoid sales taxes would be an understatement.

I know they are legal to establish in Montana and you don't even have to have a legitimate business purpose like you do in other states.  But if you do NOT establish "residency" in Montana, you should be aware that other states are attacking the Montana LLCs as being a tax avoidance scheme - which they are except in the rare cases where folks are actually running a business and not just their personal affairs.  Just because Montana and the attorneys in Montana say these are legal, it does not mean that your state of residency will agree.

The Montana folks don't tell you that you can be hauled into court by your "home state" when they find out you have not paid sales or use tax in their state.  Sure, the likliehood of that happening is small, but it can happen and has happened and will happen more as states realize the revenue they are losing.

If you go the route of the LLC, you should register your vehicles in the name of the LLC in the LLC state.  Talk about red flags if you don't. 

You can register your vehicles in another state (as an individual) other than where you own property, but you should have a legitimate address in that state and the "intent" to change residency to the new state.  When you are in transition, you may have things going in a couple of states, but your ultimate intent is key.

Always try to have all your affairs in one state that you plan to claim as your residence.  Playing games with different states to take advantage of income tax rates in one place, vehicle registration in another, voting rights in another, etc. is never a good idea.  Anyone playing that game subjects themselves to possible double taxation between states and time in court.

States love to "claim" folks as their residents and will use any contact with that state to make their case.  The actual "legal" test is "significant contacts", but the definition of "significant contacts" varies quite a bit state to state.

My advice, take it or leave it, is select a state for residence and have all your affairs through that state AND pay whatever sales or use tax is due on your RV & toad when you register in that state.  Otherwise, just be aware of potential consequences. 

 

A good friend I went to grade school with works for the State of Washington in their tax division.  Before he ever saw our motorhome he made sure we were not using a Montana LLC since Washington had been prosecuting, fining, and back taxing those they catch.  Other states I have heard doing the same are Idaho (a border state), California (not a surprise, they are agressive), Michigan (hearsay), and Florida (hearsay).   If Texas or South Dakota get into the act it will be a blood bath.

Others have already said it is best to have everything in one state and one address if possible, then you can sleep at night.

Bill

I don't know anything about the whole LLC thing but another way the state of Michigan gets their pound of flesh is via license plate renewals.

Here in Michigan you are taxed (license plate fees) on the value of the vehicle. Since you had to declare the value at the time of purchase (and you don't want to lie about that because the insurance company will look at this number if you ever have a total loss), they (the state) knows how much your RV costs. License plates here run about $400 on a $50,000 rig.

Here's the loophole. If you allow your plate to expire (obviously don't do this while you are driving it), you can transfer an exsisting plate to the RV for $8.

We simply make sure the rig is parked at the time of plate expiration, renew our toad's plate ($80), and then transfer the plate to the RV ($8). The next day you have to go back into the DMV and request a new plate for the toad ($80). Total cost (other than time in line at the DMV) is $166 instead of the $480.

For those of you that use a fifth wheel or TT, this is a non issue because trailer plates are good forever.

Thanks, everyone, for the LLC input. I should have known it was too good to be true.

RVDude, I live in Glen Allen, VA. I know you are across the river(rivah). What county has the low RV property tax??

Roy

Concerning LLC's. The current laws in Texas concerning vehicle registration involve where the vehicle is located. If a vehicle is in the same county in Texas for more then 30 days it must be registered in that county. I know individuals who have used LLC's with the idea that they would move their rig out of the county once a month to adhere to the law. Unfortunately the counties in Texas may prove to be a tad bigger then these people bargained for.
I really decided to put my two cents worth in because of some considerations that were not previously addressed. In order for an LLC to have any hope of working, the RV must be bought and registered in the name of the corporation. Many funding institutions WILL NOT finance vehicles purchased this way (after all it isn't called a Limited Liability Corporation for nothing). Likewise many insurance companies will not insure them. Some RV club benefits (like Good Sam's Emergency Road Services) are not available for these rigs because, since they are owned by a corporation, they are considered 'commercial vehicles'.

Hi Roy,

I see you have gotten lots of nay sayers, but let me give you a different perspective. We made the decision to full time last January and spent most of 2006 working toward that goal. One of the things we did was form a Montana LLC. That is because of our anticipated purchase of a new motor home and we have done it strictly for tax avoidance. That is avoidance, a legal tactic, not evasion, an illegal act. We were Texas residents and plan to stay Texas residents as there is no state income tax in TX, but there is a 6.5% state sales tax levied against motor homes.

We formed the LLC mid year, just so it would be in place as we didn't know how long it would take to sell the house & get rid of the stuff. I did call my insurance company and explained we planned to purchase a new MH in a few months and buy it in the name of our LLC. They added the LLC as another "entity" to our policy and said they would insure the MH under the LLC name. They also understood the tax avoidance thing. If they had said no, we would have looked for another company as there are a number of them out there that provide insurance for an LLC MH.

We drove away from our house Jan 5th of this year and changed to an SKP mailing address. We are currently in the process of ordering our new MH. There are lenders that will and lenders that won't. Just be asking in advance if you are financing. We have found one that will and secured approval for the loan using the LLC as the purchaser, and us as the principals of the LLC. The MH will have a Montana license tag. Our current tow car will still have TX tags as it is not in the LLC. When we buy a new car next year, it will also be included in the LLC

If we were keeping a home, I'm not sure this would be a good solution, but since we will be in the state little of the year, we are quite comfortable with the situation. Most of the states you read about coming after LLC users, are where the person parks the Montana licensed MH in their yard most of the year. As a full timer, you will probably spend little time in your state of residence. If that isn't the case with you, then you might find it more comfortable to do something different.
Donna

It's always great to get other perspectives.  That's what a Forum is all about. 

There are numerous folks that are using the Montana LLCs to avoid sales taxes on the purchase of motorhomes.  Most will never have a problem because they won't be discovered.

I have considered the Montana LLCs, and they are enticing when one thinks about saving thousands of dollars in sales taxes.  And they are "legal" under Montana law.  HOWEVER, other states don't have to follow Montana law and it may not be legal under their laws.

Here is one quote to back that up.

"Montana lawyers say it's legal and it may be legal in Montana, but in Missouri you're evading taxes, you're evading state sales taxes, local sales tax," says Department of Revenue public information officer Maura Browning.

I've discussed this subject in an earlier post, but I felt the need to hash it out from a few different angles.

First, if this practice is completely legal in all states, we should all be able to call up our state government and say: "I'm going to establish an LLC in Montana with no business purpose.  The sole reason I'm going to do this is so I can purchase a motorhome and avoid paying sales taxes here in this state - my official state of residency.  It's perfectly legal - the Montana RV dealers and attorneys will vouch for me."  

Second, those that stand steadfast behind the "it is perfectly legal" statement are the Montana RV dealers, Montana attorneys, and other Montana companies that profit from this "loophole".  As I said before, the practice IS legal .... according to Montana, the state that benefits.  However, would any of those Montana entities indemnify me from all legal liability imposed by my residence state if I comply with everything the Montana folks tell me and I still get hauled into court?  Fat chance.   

Third, if I were a state attorney, what do I think my rate of success would be in prosecuting those using a Montana LLC to avoid sales taxes?  I think it would be pretty easy to win such a case.  The argument that the LLC owns the motorhome rather than the individual is an easy one to overcome.  This is the area where most people think they have protection and where many on the other RV forums use faulty reasoning.  But the problem is that these Montana LLCs do not have any legitimate business purpose - they are established soley to avoid sales taxes.  Therefore it is really easy to "pierce the corporate veil" which is a legal phrase meaning the entity and the individual are one and the same - the entity is simply a facade.  Furthermore, I don't care what state laws the Montana attorneys quote, there is no state that is going to interpret its own statutes to say "All legal residents of this state can purchase vehicles in other states to avoid state sales and use taxes as long as they establish an LLC in the other state and register the RV in the name of the LLC in the other state.  And there is no reason to limit this to motorhomes; all vehicles may be purchased in this manner."   

Fourth, knowing the working of government minds, I can see the following scenario.  Let's say a young government employee or politician decides to make a name for himself/herself.  As bjoyce said above, the greatest impact would be in Texas or South Dakota.  So how easy would it be for someone looking to generate a lot of revenue or attention to send letters to all those Texas "residents" with Escapees addresses requesting proof of RV registration?  Say they find 1,000 people with Montana LLC registrations and the average motorhome price is $100,000.  Now we are talking about $6.5 Million dollars in revenue using the 6.5% sales tax figure.  Worth pursuing?  You betcha - especially when this is put in front of the massive non-RV owning public that can't believe the government has allowed the "rich" motorhome owners to get away with avoiding the same taxes they all have to pay. 

My intent is not to criticize, judge, or scare those that have opted for the LLCs.  It's really, really hard to pay $13,000 in Texas taxes on a $200,000 motorhome when there is a widely "accepted" method to avoid that.  And the risk of having a problem right now is still fairly low (although that risk is increasing - no doubt about that).  So it certainly is an often-used technique with lots of supporters that have saved lots of money.

But I just can't bring myself to recommend the practice because I'm not convinced it is "perfectly" legal.  Well, I also have my own personal issues with it, but that doesn't mean anything. 

There is an unbelievable amount of discussion in other forums on Montana LLCs.  Much of it is hearsay and there are a lot of folks with major misconceptions about legal issues.

Lots of people are using Montana LLCs.  But if the main argument is "The likliehood of getting caught is low", then that is bothersome.  If you go that route, know the facts and understand the potential consequences - and you didn't get the idea to use a Montana LLC from me.    

-- Edited by Howard at 08:04, 2007-02-10

We bought our motorhome in California, where we live.  We paid California sales tax on it and registered it in California.

We were recently forced to file suit under our state's "Lemon Law" due to a continual roof leak that could not be located or repaired.  

Close to 96% of all claims filed under the California Lemon Law are settled before going to court because of the strength of the law in our state. 
 
If an RV manufacturer refuses to settle and loses in court, the RV owner recovers all costs incurred, including the initial cost of the RV, sales tax and registration, all monthly payments paid to date (if financed), and any other related costs.  The manufacturer must also pay triple damages.  
 
We never thought we would need to use our state's lemon law but now we are very glad that our state's strong law will probably save us much more than the sales tax and registration fee cost us.  

     Evasion vs Avoidance, that is the issue.  Many, Howard included will never move from left to center if they can't get over the Evasion focus in their thinking.  I would challenge all who are stuck on the issue to question themselves as to thier filing of annual income taxes, both federal and state.  Are you telling me that you do not do your level best, or hire the best accountant to help you "Avoid" paying more tax than is owed, based on law.  Understanding of course that interpretation of the law is the paramount issue.  That being said.
     Many of the possibilities of what could happen as expressed by those posting here I would not challange, however the likelyhood of it happening are extremely remote.  A class action type challange even more unlikely.  The RV crowd with LLC's is miniscule in comparison to huge corperations that have their entire fleet of Trucks or Cars licensed in a particular state because of the "Avoidance" tax advantages gain them even though their entire business entity is in another state.  Forming an LLC to Avoid taxes is so common among Corperate America as to not even raise an eye brow.  I speak from experience as a former trucking company owner prior to retirement I had my LLC in Nevada for my business but lived and worked out of Wisconsin.  Why, to save tax dollars and take advantage of what loop-holes were available to me.  Illegal--no, stupid--no, smart, I think so.
     Lets seek someone to post here who has had any of the negative challanges, previously mentioned, brought to bear on them by any lawful entity.  Lets hope those who heard Aunt Millie, who heard it from Uncle Harry, Who got it from the bar tender last week, will not pipe in.
     I would advise anyone who owns or intends to own property in any state other than the state they are getting the LLC in to not go the LLC route, but if you are a true Full-Timer without realestate, an LLC could work well for you.  Do your research, and don't be scared off with suposition.
     Yes, I do have my motorhome licensed through my LLC., and don't loose any sleep over it at all.
     Please forgive the tone if I sound a bit harsh, but so much negativity on this subject pop's up on other forums and eventually it puts a burr under the saddle of those of us (and there are many) out here who have absolutely no problems.

     Remember, Please be careful about traveling in Mexico, the banditos may get you.
 

Ah "quickfoot", thanks so much for your post. 

And thanks for helping me clarify this a little further.  I am in no way condemning those that have taken the Montana LLC approach.  Attorneys and accountants push gray areas of the law to their limits for their clients all the time.  But as a former attorney and accountant, this is not a practice I would ever recommend for a client.

You are correct that one issue is "Evasion vs. Avoidance".  What I am trying to make clear is that what Montana might declare as legal avoidance is clearly evasion in the eyes of other states.

Where it is not yet clear, I don't blame anyone for using this method to "avoid" sales taxes.  
I think we all agree that "legal" maneuvers to avoid taxes is fine.  My caution is simply that it is more likely than not that states will declare this practice illegal the more it comes up.

The likelihood or odds of anyone being prosecuted always comes up in this discussion.  That is part of the risk analysis.  But I have to question why that is such a big issue if the practice is "perfectly legal". 

The corporate argument is always brought up as well.  There are numerous nuances to corporate law and numerous reasons why LLCs and corporations carrying on commercial business are allowed to legally avoid taxes by monkeying with their states of domicile.  But comparing those situations to these Montana LLCs is comparing apples to oranges.

The key is that these Montana LLCs are not conducting any type of commercial business.  Where they are, no problem.  But where they are simply shells for tax "avoidance" or "evasion" whatever it may be, they are problematic and will not provide protection to the principals.  Even corporations that purport to conduct commercial business but don't have their entity voided all the time and the principals are held liable.

Thanks again for the post.  Thousands with Montana LLCs already have had no problems and the risk is minimal as a full-timer as you have said.  Again, we just want people to fully understand the legal issues as they are not properly set forth elsewhere. 

Just as you have said each person needs to be absolutely sure of the issues, legalities, and risks.  And I also agree that we don't want stories of cousins thrice removed that have been nailed.    


   



 

I'm with Howard and the others who advise extreme caution on this one.

I haven't followed this discussion on any of the other message boards out there... it may have been suggested already for all I know... but it would seem to me the simplest thing to do would be to consult an attorney in the state where I intend to establish my legal residency to find out if that state considers buying an RV through a Montana LLC legal tax avoidance or illegal tax evasion. That would be a relatively inexpensive way to resolve any doubts about the issue. The argument that "you're not likely to get caught" says, to me at least, that there is at least some degree of awareness of the possibility of being on legally thin ice. Why not find out for sure, one way or the other? We wouldn't even be having this discussion if it wasn't a questionable practice in the first place.

It's easy to understand why states would allow this practice for businesses. They fall all over each other competing to provide incentives and tax breaks to companies in order to attract or retain businesses which provide jobs for their citizens - who then (you guessed it) get to pay the whole gamut of state sales/income/property taxes, which more than offset the business tax breaks. So there are tangible benefits to the states for granting exceptions to businesses. RVers however, for the most part anyway, are not businesses.

Tim Fansler

"Be sure you're right... then go ahead"  - David Crockett

I think this is really a question of risk assessment, rather than whether or not the home state would think it's tax avoidance, or evasion.

I can't imagine the state that would think it avoidance without a legitimate business interest. The risk wouldn't be worth it for my $60 K trailer, but might be worth it if I had a $400K motor home, assuming the penalty would be the same for both.

I'm guessing the risk is probably pretty low.

Fred