Montana state flag license plate 3589

Montana LLC RV Titling: Tax avoidance or Tax Evasion?

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.

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 comes in the form of a use tax, or sales tax. And because many of these states 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,

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 critics 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 cruise thse 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, when if it eventually comes time to but 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.

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

 

 




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  • Karon M

    Excellent article, Mike. We know dozens of people who’ve purchased RVS in Montana and Wyoming, though none are from Michigan and all RV full-time. Would love to be a full-timer with an organization like Sowers. Toured the Foretravel factory this spring. Wow, way out of our league, but worth the time. http://www.foretraveloftexas.com/list-inventory.php?category=New

  • I am second owner and paid 13% tax
    Any comments ? Ontario Canada
    P.S Thank you for interesting article

  • Mike Jaye

    This article helps me in that I’m from Michigan, but live in Oklahoma, a state that has some weird tax views (I’m still researching the RV taxes here). But this article has made sure I will not be relocating to Michigan and purchasing my RV there!

  • Rick and Kelly

    I say if there’s a loophole, take it. States tax us to death!!!

  • Hello my family member! I wish to say that this
    article is amazing, great written and include almost all
    significant infos. I’d like to see extra posts like this .

  • Clive smith

    You are a fool if you think out I’d unethical to avoid taxes any way you can. The more you give the government the more they want and take.

  • Barbara J Johnson

    Bravo, Mike Wendland!

  • Rico Muscatel

    For full-timers without a permanent residence, you can pick up a mailbox in Florida and be good to go. But for other places, it pays to shop around. Being from Illinois, I would still have to pay Michigan sales tax if I bought from a dealer up there, so maybe low or no sales tax states would be better. Just wait until they start taxing home purchases.

  • inthecloset

    Adding to the complication is if you do this you can be forced to have a CDL depending on the size of the motorhome and the state you operate the motorhome in. Since an LLC is a business you can also be subject to IFTA fuel tax as well. There is no free lunch. Finally insurance and finance make this even more complex. The only way I can think of this working out would be if the LLC owned the motorhome and then leased it at below market rates to the person in the high tax state. That way taxes would be paid in the high tax state but at greatly reduced rates. For example the LLC would purchase a $250,000 motorhome and then turn around and lease it for $200 per month to a Michigan resident. The Montana LLC is the owner. Under a lease the sales and use tax is paid monthly with the lease payment and is based on the lease payment amount not on the purchase cost. Since the LLC never paid the sales or use tax but it still could be registered locally. There is no free lunch however. It depends on the state lease regulations if this can work. It would only work in situations where the motorhome is owned free and clear because obtaining financing for such an arrangement would be difficult.

  • Gene Bjerke

    When I was ready to buy my first Roadtrek, I had a friend from North Carolina who had Montana plates on his. I ran the idea past my son who is both a lawyer and someone who can always find the cheapest way to do things. He was very dubious of the practice, so I registered the vehicle in Virgina (my home state). Luckily, I was able to move to a county that has lower personal property taxes, but they still are pretty stiff. I pay the taxes because if my son thinks the situation is dodgy, I will go with his judgement.

  • HD Case

    I’m with you Mike. Taxes are the price we pay for a civilized society. Those who typically game the system, i.e. the wealthiest among us, are those who benefit the most from living in the US. Given the creation of this MT strategy it looks like the middle class is now copying the rich in tax avoidance and flushing our country down the drain. Shame on those who are so cheap they scheme to avoid paying a few hundred dollars in taxes to the detriment of all their fellow home state residents, particularly the elderly and poor kids who most depend on tax support!

  • Keith Lowery

    I just wanted Montana license plates so no one would know I’m from Texas. It’s tough being a minority here. All us Liberal Democrats have to keep it hush-hush.

    • So you moved to a conservative state, because you like the environment better than where you were. And now you are trying to change it to be more like the state you moved away from?