Montana LLCs and Avoiding Tax
A recent story in the Colorado Business Journal talks about a consumer trend of tax evasion by establishing limited liability companies in Montana to facilitate registering RVs, thus avoiding higher local state and city sales tax. The Colorado Department of Revenue is now going after these RVers with felony tax evasion charges and several consumers have already pleaded guilty. Colorado is probably not the only state that takes exception to people not registering their vehicles at their home address. Will this be an ongoing trend or is this something that can be addressed at the point of purchase in the F & I office?
While an RV dealer may have little control over where consumers decide to ultimately register their vehicles, I suspect dealers recommending this practice to customers could get their sales tax license pulled, causing all sorts of problems for the dealership.
My question for this week’s blog is does your F&I manager discuss vehicle registration with your customers and do they offer advice on where to register? Is this out-of-state-registration practice illegal in your city and state? Do you have a company policy regarding this and if so what is it? I know there are tons of lawyers’ ads in RV consumer magazines soliciting LLC business from potential new RV customers. How big of an issue is this for your dealership?
June 20th, 2008 at 3:15 am
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May 30th, 2008 at 2:06 pm
I am always leery of doing something just because someone said so…always check to see if they have the authority!
I have to wonder if indeed it is against the law in this free country to set up a corporation in another state. Surely, with all the Deleware Corps it must not be the case. Next question is…can a corporation own equipment. Obvious answer is yes. So, in short, if setting up a corp is legal and owning equipment in the corp is legal…the Fed excepts the tax filings of the corp…the State you live in is screwed and I don’t see that as tax evasion! Someone will chalenge this some day and, me thinks, win!
May 29th, 2008 at 10:20 am
In my mind, this is tax evasion - plain and simple. I think it’s dishonest for the people who establish a Montana LLC (or any other state’s LLC) and avoid paying taxes while the rest of honest people pay taxes!
May 28th, 2008 at 4:38 pm
I get calls from time to time from prospects that have a non-profit status and are traveling around the country. It always ends up with a request for a discount or some other angle. I think it is happening more often than we all know and it is best for a legit business to steer clear of it.
May 28th, 2008 at 4:37 pm
I get calls from time to time about someone that has a non-profit status and is traveling around the country. It always ends up with a request for a discount or some other angle. I think it is happening more often than we all know and it is best for a legit business to steer clear of it.
May 28th, 2008 at 3:03 pm
Ray
I’m in Georgia. I’m pretty sure that Tennessee looks at things the same way as Georgia but I’m not positive about that.
The frightening thing is the fact that the state came in here and decided that what we had been doing for years was wrong. No warning, just “we’ve decided this is not legal , pay up now.”
Knowing that it happened here, I’d be very leery about selling to an LLC or any other “non taxable” entity regardless of what state I was doing business in.
May 28th, 2008 at 2:42 pm
A couple of thoughts.
No one likes paying taxes but then again no one likes driving on roads that are more like granny’s washboard. You can either feel the pain of paying the taxes once or the pain you feel ever time you drive down the road.
Second, rules are never fair, there are always winners and losers. So get over it.
RV dealers are selling secured property that is registered and they know the rules better than the guy who comes in to buy an RV.
May 28th, 2008 at 9:25 am
What state is Mike from. The state of Texas asked us about this practice several years ago, but has not pursued it as of yet
May 27th, 2008 at 4:36 pm
Dana
The dealership that I work for , along with most others, have, until recently, consdered the sale and registration to LLC’s to be completely legitimate and above board. We never had a reason to think otherwise.
Well guess what - we were audited last year by our state and were given notice that the state considered the practice to be illegal for residents of our state to register their vehicles in another state, LLC or otherwise. We were subsequently charged for all the “unpaid” taxes. Our only recourse at that point was to appeal to our customers for reimbursment. If they refused, it fell to us to take legal action.
As it stands now, if a buyer provides anything to us that gives the appearance of residency in this state - they will pay the tax required of this state. That means a drivers license, a check with an in state address, W-2 forms or federal tax returns. All of this is pretty much OK because we have no desire to break the law and the same is true of the majority of our customers.
The problems arise when the folks who are not quite so picky about wearing a white hat decide that paying tax is for the fools. As long as all state’s are able to write their own rule books, the playing field tends to slope dramatically. A potential customer can just drive across the state line to a dealer and make his purchase without paying any tax [if the state is non-reciprocal] He then can write to Montana or Oregon or anywhere he wants and obtain a title without much trouble.Once he has a title, he can get a license plate. Next year he just switches his title for one from his home state.
Oregon used to be the hot spot. Customers would register in Oregon with a mail forwarding service as the address of record and bada-bing. No tax. Several years ago some salesmen went to jail for using their home addresses as place of residence for these illicit tax dodges and Oregon began issuing fewer titles.
Generally speaking when a state catches a dodger, the fine is equal to the original tax which is also still due, so if your tax would have been say $20,000.00 originally - now it will cost you $40,000.00. I think thse people would be better served to just pay the tax or move their residency legally to another state and spend their time looking out the windshield instead of in the rear view mirrors to see who’s coming after them.
Life is short.
Eat desert first.
May 27th, 2008 at 3:45 pm
I am not a dealer but I am in an associated trade. I also own a lot at one of the Outdoor Resorts facilities. While the practice of actually evading the proper tax is (of course) wrong, I do have friends and clients that spend more time out of their home state than in it (while traveling in their coach). Many RV owners summer in Northern climes, winter in Southern and only touch home base for a couple of weeks a year. Honestly, there needs to be a flat fee for people like this. They don’t use the interstates much and they’re not home much. How do you tax them?