Montana LLCs

[Don Bradner]

The use of a Montana LLC to register a motorhome (by a non-Montana resident) has
been the source of a lot of debate for years. I know that there have been at
least a couple of Birds for sale in the past two years where the seller has
stated that it was Montana registered, and actively promoted such as a big money
saver. So, I thought it might be worth noting here that various RV groups are
all abuzz with the news that the state of Colorado has gone after a number of
residents with such an arrangement. 12 with criminal prosecutions, 122 others
with civil.

One of the myriad of stories about it can be found here:
http://www.denverpost.com/news/ci_9333908

[Ryan Wright]

I'd like to read the actual case notes on a few of these, to see what
people did wrong. Seems to me it's perfectly legal to register a
company in any state you so choose, and to assign assets to that
company, which would naturally pay the taxes set forth by the state in
which the company was registered. I wonder when and if Montana will
get embroiled in a lawsuit with Colorado over this. Colorado is
effectively filing criminal charges against Montana based LLCs whose
owners reside in Colorado, even though, it seems, the LLCs were
perfectly legal in Montana. I hope one of the people in question
appeals this to the federal level. A state that thinks it can collect
taxes from residents on business property registered to an out of
state business is, quite frankly, over the line.

Yeah, I know they probably all did it purely to avoid taxes, but
that's neither here nor there. If the LLC was setup legally, then the
operation is legal. For Colorado to attack Montana businesses in this
fashion seems more illegal than what the owners did. We can argue all
we want over whether this is "moral", I personally have no problem
with folks concocting elaborate schemes to legally keep more of their
own hard earned money from the government.

Anyway, would be very interesting to read the case notes and the full
text of the laws they were charged with breaking.

-Ryan

On Sun, May 25, 2008 at 8:34 PM, Don Bradner wrote:
> The use of a Montana LLC to register a motorhome (by a non-Montana resident)
> has been the source of a lot of debate for years. I know that there have
> been at least a couple of Birds for sale in the past two years where the
> seller has stated that it was Montana registered, and actively promoted such
> as a big money saver. So, I thought it might be worth noting here that
> various RV groups are all abuzz with the news that the state of Colorado has
> gone after a number of residents with such an arrangement. 12 with criminal
> prosecutions, 122 others with civil.
>
> One of the myriad of stories about it can be found here:
> http://www.denverpost.com/news/ci_9333908
>

[Terry Neal]

Well put Ryan. All the people in the RV industry, as well as RV
owners, in Montana watch this continued dispute closely. Our Attorney
General is not budging one inch with the other states on this subject.
He is charged with seeing that the Montana State Code is applied
consistently to all entities that are registered in the state. This
includes LLCs, which are perfectly legal as indicated.



Terry Neal

Bozeman, MT

82 PT40





Ryan Wright wrote:

I'd like to read the actual case notes on a few of these, to see
what

people did wrong. Seems to me it's perfectly legal to register a

company in any state you so choose, and to assign assets to that

company, which would naturally pay the taxes set forth by the state in

which the company was registered. I wonder when and if Montana will

get embroiled in a lawsuit with Colorado over this. Colorado is

effectively filing criminal charges against Montana based LLCs whose

owners reside in Colorado, even though, it seems, the LLCs were

perfectly legal in Montana. I hope one of the people in question

appeals this to the federal level. A state that thinks it can collect

taxes from residents on business property registered to an out of

state business is, quite frankly, over the line.



Yeah, I know they probably all did it purely to avoid taxes, but

that's neither here nor there. If the LLC was setup legally, then the

operation is legal. For Colorado to attack Montana businesses in this

fashion seems more illegal than what the owners did. We can argue all

we want over whether this is "moral", I personally have no problem

with folks concocting elaborate schemes to legally keep more of their

own hard earned money from the government.



Anyway, would be very interesting to read the case notes and the full

text of the laws they were charged with breaking.



-Ryan



On Sun, May 25, 2008 at 8:34 PM, Don Bradner <"bluethunder%40arcatapet.com">
wrote:

> The use of a Montana LLC to register a motorhome (by a non-Montana
resident)

> has been the source of a lot of debate for years. I know that
there have

> been at least a couple of Birds for sale in the past two years
where the

> seller has stated that it was Montana registered, and actively
promoted such

> as a big money saver. So, I thought it might be worth noting here
that

> various RV groups are all abuzz with the news that the state of
Colorado has

> gone after a number of residents with such an arrangement. 12 with
criminal

> prosecutions, 122 others with civil.

>

> One of the myriad of stories about it can be found here:

> http://www.denverpost.com/news/ci_9333908

>

[Pete Masterson]

The press reports are always a little light on the specifics of the issues involved.

Colorado has no way to object to an LLC in Montana owning property and even using it in Colorado. I drove my MT registered motor home in Colorado several times without issue. I was not, however, a Colorado resident (as defined in Colorado law) at any time. 

Colorado _can_ object to residents of that state flagrantly using the Montana LLC to avoid paying taxes in Colorado. The key is that the resident "belongs" to Colorado and has the Montana registered vehicle in Colorado. That violates the Colorado DMV rules that state that a vehicle in "possession" of a Colorado resident must be registered in Colorado. (Note that "ownership" isn't the issue, but simple "possession" is the issue.) The CO law reads that "all vehicles in possession of CO residents must be registered in CO within 30 days." Since CO can't reach over state lines, CO can't enforce it's registration requirements on vehicles or other property that remain outside CO.

So, there's no interstate squabble. CO and MT do not need to square off in court. Indeed, there is nothing in either the laws of CO or MT that conflict. If the Colorado resident never brought the vehicle into Colorado, there would be nothing to argue about. There is also no basis for the Colorado residents to appeal to a Federal court. There is no interstate issue here at all. The Colorado resident may avoid any controversy with Colorado's tax collector by keeping the vehicle out of Colorado. 

Note that this issue was thoroughly litigated in California 30+ years ago when CA cracked down on people who were registering cars in Oregon and Nevada to avoid the high registration fees in CA. 

The typical (but rules do vary by state) situation is that purchase of a vehicle (new or used) will trigger assessment of sales or use tax by the state where the purchaser lives -- if the purchase (this actually applies to all products purchased out of state) is brought into the state. If the buyer is a multi-state resident (or entity) then the state where the product is delivered and/or placed into service will benefit from the sales tax payment. After some period of time, the state will allow registration of a used vehicle transferred from another state without payment of sales tax. In California, the rules are fairly specific. Purchase outside the state, do not bring into the state for 90 days, and/or have at least 7500 miles on a new vehicle -- then you are exempt from paying the sales/use tax. Colorado has similar terms, but I was unable to find specific timing on their online materials -- but the CO DMV web site did state that "new car" to CO resident pays sales tax. Other state resident moving to CO and becoming a CO resident does not pay sales tax on their previously owned vehicle. So, there must be some determination as what constitutes new vs. used and how long a period after purchase is required -- but it isn't found online. 

Note that over-the-road commercial vehicles have "prorated" registrations, so that they pay shares of their vehicle taxes to the states they travel through. This does not violate any individual state's taxing authority. 

Pete Masterson

'95 Blue Bird Wanderlodge WBDA 42

El Sobrante CA

"aeonix1@mac.com"

On May 26, 2008, at 12:27 PM, Ryan Wright wrote:

I'd like to read the actual case notes on a few of these, to see what

people did wrong. Seems to me it's perfectly legal to register a

company in any state you so choose, and to assign assets to that

company, which would naturally pay the taxes set forth by the state in

which the company was registered. I wonder when and if Montana will

get embroiled in a lawsuit with Colorado over this. Colorado is

effectively filing criminal charges against Montana based LLCs whose

owners reside in Colorado, even though, it seems, the LLCs were

perfectly legal in Montana. I hope one of the people in question

appeals this to the federal level. A state that thinks it can collect

taxes from residents on business property registered to an out of

state business is, quite frankly, over the line.

Yeah, I know they probably all did it purely to avoid taxes, but

that's neither here nor there. If the LLC was setup legally, then the

operation is legal. For Colorado to attack Montana businesses in this

fashion seems more illegal than what the owners did. We can argue all

we want over whether this is "moral", I personally have no problem

with folks concocting elaborate schemes to legally keep more of their

own hard earned money from the government.

Anyway, would be very interesting to read the case notes and the full

text of the laws they were charged with breaking.

-Ryan

[Pete Masterson]

<snip> If the buyer is a multi-state resident (or entity) then the state where the product is delivered and/or placed into service will benefit from the sales tax payment. <snip>

I note that my long-ago former employer, Southern Pacific railroad was headquartered in California, was incorporated in Delaware. When they purchased new rail (freight) cars, they would always be delivered to Oregon (no sales tax) and would take on their first revenue load (put into service) in that state. That avoided (legally) paying the sales tax to California as the rules applied to common carrier equipment purchases.

Pete Masterson

'95 Blue Bird Wanderlodge WBDA 42

El Sobrante CA

"aeonix1@mac.com"

[Leroy Eckert]

Don't you live in CA? They have done this for 40 years there long before computers. It was called a Use Tax. Perhaps the nomenclature has been changed. CA also tries and will tax your retirement if you earned it in that state no matter where you live.

Read all you want an hire a $300 per hour lawyer and where is that going. Just pay the tax. It is less expensive in the long run and you will sleep well.

These days in the electronic world big brother knows what you ate for breakfast before it is deposited in the Microphor.

Leroy Eckert
1990 WB-40 Smoke N Mirrors
Dahlonega, GA
Royale Conversion

Ryan Wright wrote:

I'd like to read the actual case notes on a few of these, to see what
people did wrong. Seems to me it's perfectly legal to register a
company in any state you so choose, and to assign assets to that
company, which would naturally pay the taxes set forth by the state in
which the company was registered. I wonder when and if Montana will
get embroiled in a lawsuit with Colorado over this. Colorado is
effectively filing criminal charges against Montana based LLCs whose
owners reside in Colorado, even though, it seems, the LLCs were
perfectly legal in Montana. I hope one of the people in question
appeals this to the federal level. A state that thinks it can collect
taxes from residents on business property registered to an out of
state business is, quite frankly, over the line.

Yeah, I know they probably all
did it purely to avoid taxes, but
that's neither here nor there. If the LLC was setup legally, then the
operation is legal. For Colorado to attack Montana businesses in this
fashion seems more illegal than what the owners did. We can argue all
we want over whether this is "moral", I personally have no problem
with folks concocting elaborate schemes to legally keep more of their
own hard earned money from the government.

Anyway, would be very interesting to read the case notes and the full
text of the laws they were charged with breaking.

-Ryan

On Sun, May 25, 2008 at 8:34 PM, Don Bradner <"bluethunder%40arcatapet.com"> wrote:
> The use of a Montana LLC to register a motorhome (by a non-Montana resident)
> has been the source of a lot of debate for years. I know that there have
> been at least a couple of Birds for sale in the past two
years where the
> seller has stated that it was Montana registered, and actively promoted such
> as a big money saver. So, I thought it might be worth noting here that
> various RV groups are all abuzz with the news that the state of Colorado has
> gone after a number of residents with such an arrangement. 12 with criminal
> prosecutions, 122 others with civil.
>
> One of the myriad of stories about it can be found here:
> http://www.denverpost.com/news/ci_9333908
>

[Leroy Eckert]

I wonder if anyone on this site ever considers that it may be monitored by someone in the appropriate division of the taxing State. That goes for RV.net or any other site. It is open to the public. Perhaps they do not even have a BB but say they do????????Huh?

Leroy Eckert
1990 WB-40 Smoke N Mirrors
Dahlonega, GA

Pete Masterson wrote:

The press reports are always a little light on the specifics of the issues involved.

Colorado has no way to object to an LLC in Montana owning property and even
using it in Colorado. I drove my MT registered motor home in Colorado several times without issue. I was not, however, a Colorado resident (as defined in Colorado law) at any time.

Colorado _can_ object to residents of that state flagrantly using the Montana LLC to avoid paying taxes in Colorado. The key is that the resident "belongs" to Colorado and has the Montana registered vehicle in Colorado. That violates the Colorado DMV rules that state that a vehicle in "possession" of a Colorado resident must be registered in Colorado. (Note that "ownership" isn't the issue, but simple "possession" is the issue.) The CO law reads that "all vehicles in possession of CO residents must be registered in CO within 30 days." Since CO can't reach over state lines, CO can't enforce it's registration requirements on vehicles or other property that remain outside CO.

So,
there's no interstate squabble. CO and MT do not need to square off in court. Indeed, there is nothing in either the laws of CO or MT that conflict. If the Colorado resident never brought the vehicle into Colorado, there would be nothing to argue about. There is also no basis for the Colorado residents to appeal to a Federal court. There is no interstate issue here at all. The Colorado resident may avoid any controversy with Colorado's tax collector by keeping the vehicle out of Colorado.

Note that this issue was thoroughly litigated in California 30+ years ago when CA cracked down on people who were registering cars in Oregon and Nevada to avoid the high registration fees in CA.

The typical (but rules do vary by state) situation is that purchase of a vehicle (new or used) will trigger assessment of sales or use tax by the state where the purchaser lives -- if the purchase (this actually applies to all products
purchased out of state) is brought into the state. If the buyer is a multi-state resident (or entity) then the state where the product is delivered and/or placed into service will benefit from the sales tax payment. After some period of time, the state will allow registration of a used vehicle transferred from another state without payment of sales tax. In California, the rules are fairly specific. Purchase outside the state, do not bring into the state for 90 days, and/or have at least 7500 miles on a new vehicle -- then you are exempt from paying the sales/use tax. Colorado has similar terms, but I was unable to find specific timing on their online materials -- but the CO DMV web site did state that "new car" to CO resident pays sales tax. Other state resident moving to CO and becoming a CO resident does not pay sales tax on their previously owned vehicle. So, there must be some determination as what constitutes new vs. used and how long a period after purchase is
required -- but it isn't found online.

Note that over-the-road commercial vehicles have "prorated" registrations, so that they pay shares of their vehicle taxes to the states they travel through. This does not violate any individual state's taxing authority.

Pete Masterson

'95 Blue Bird Wanderlodge WBDA 42

El Sobrante CA

"aeonix1@mac.com"

On May 26, 2008, at 12:27 PM, Ryan Wright wrote:

I'd like to read the actual case notes on a few of these, to see what

people did wrong. Seems to me it's perfectly legal to register a

company in any state you so choose, and to assign assets to that

company, which would naturally pay the taxes set forth by the state in

which the company was registered. I wonder when and if Montana will

get embroiled in a lawsuit with Colorado over this. Colorado is

effectively filing criminal charges against Montana based LLCs whose

owners reside in Colorado, even though, it seems, the LLCs were

perfectly legal in Montana. I hope one of the people in question

appeals this to the federal level. A state that thinks it can collect

taxes from residents on business property registered to an out
of

state business is, quite frankly, over the line.

Yeah, I know they probably all did it purely to avoid taxes, but

that's neither here nor there. If the LLC was setup legally, then the

operation is legal. For Colorado to attack Montana businesses in this

fashion seems more illegal than what the owners did. We can argue all

we want over whether this is "moral", I personally have no problem

with folks concocting elaborate schemes to legally keep more of their

own hard earned money from the government.

Anyway, would be very interesting to read the case notes and the full

text of the laws they were charged with breaking.

-Ryan

[Don Bradner]

Not meaningful. The SP corporate business was an actual business, doing business
in multiple states. The typical Montana LLC is setup simply for tax avoidance,
and does no real business; some states consider that tax evasion, and your
choice is to not live in one of those states, or never bring your
Montana-registered vehicle in, or be aware that there is some chance, small or
large, that you might eventually have to pay.

My only personal objection is to the marketing. Those selling the concept
broadcast far and wide that they are legal in Montana (which they are) and that
this makes them legal everywhere (which it does not). If there is a disclaimer
that it might not work out, it must be buried well in the fine print.

On 5/26/2008 at 1:50 PM Pete Masterson wrote:

>> <snip> If the buyer is a multi-state resident (or entity) then the
>> state where the product is delivered and/or placed into service
>> will benefit from the sales tax payment. <snip>
>
>I note that my long-ago former employer, Southern Pacific railroad
>was headquartered in California, was incorporated in Delaware. When
>they purchased new rail (freight) cars, they would always be
>delivered to Oregon (no sales tax) and would take on their first
>revenue load (put into service) in that state. That avoided (legally)
>paying the sales tax to California as the rules applied to common
>carrier equipment purchases.
>
>Pete Masterson
>'95 Blue Bird Wanderlodge WBDA 42
>El Sobrante CA
>aeonix1@...

[brad barton]

Pete's information as always, is comprehensive.

Just a personal experience. One of the attorneys in Boseman who sets up LLC's told me the system is virtually untouchable if the coach you want to buy is out of state and your state is not adjacent to or near Montana due to the hassling some CA and OR owners have had. And if like us, you travel a lot in the west, then you could get it done in North Carolina.

Since my coach was already in Texas and I was in Texas, there was a chance that a major dealer would create a paper trail..and..if the dealer was investigated for sales tax issues, my coach could come up. It did happen at a Foretravel dealer who went out of business in east Texas a few years ago. A few people were forced to pay taxed but I don't believe any were prosecuted. Had my coach beenout of state, itwould no big deal to register in Montana to avoidTexas sales taxes legally. When I decided against the LLC, the attorney refunded my money immediately.So I paid the State of Texas $14K in taxes on a coach whose original owner paid 3 times that much when it was originally purchased. And I'm still waiting for Texas to fix I-35.

BradBarton00LXiDFW bbartonwx@...

---

---

Give to a good cause with every e-mail. Join the i’m Initiative from Microsoft.

[Pete Masterson]

There are legal ways to avoid taxes. Tax avoidance is honest and fair. The tax laws are written such that taxpayers are expected to pay the minimum _legal_ tax due. That is all that is reasonable for the tax authorities and other citizens should ask. (Please understand, I was a California licensed tax preparer -- I have some experience in this area -- my goal was always to allow my clients to pay the minimum legal tax -- no more, no less.) 

Tax evasion is "cheating" and is dishonest. Tax evaders should be caught, fined, and made to pay the proper taxes that are due. If serious fraud is involved, evaders ought to spend some time in prison. Tax evasion ends up costing honest tax payers as overall tax rates might be lower if all tax payers paid the minimum legal tax owed.

The tax authorities (should) have no problem with a discussion of honest tax avoidance, as that is how the laws and rules are written. If the legislature felt that the laws should be different, it is within their capacity to change the laws. While a discussion of tax evasion is "free speech", I don't advocate or support improper, fraudulent tax evasion.

For a California resident to follow the rules and avoid paying CA sales tax, the state obviously has no problem as they have implemented the method with forms, etc. that allow the method to be used -- subject to some inconvenience. Just follow the rules. 

California does have a "sales tax" that is applied to qualifying purchases made within the state. They also have a "use tax" that applies to CA residents who buy things from out of state that are delivered to a CA address. (These taxes apply to almost all tangible personal property, not just vehicles.) To facilitate paying the use tax, California now has a space on the income tax form to report the use taxes owed on out-of-state purchases.

I doubt that state or Federal tax authorities would bother to spend much time monitoring this or most other online lists. Most cases of tax evasion are reported by business contacts, employees, neighbors, or friends (?) of the tax payer. CA maintains a special call-in number to report out-of-state registration violations. The IRS offers to share the sum collected if evasion is found based on a report (but they rarely actually pay off). 

In my own case, my coach was originally registered with a MT LLC because it was my intent to establish residence in another state and full time. With the crash in the real estate market, my plans to sell my California home were cancelled, I closed the MT LLC and registered my coach in California -- following the rules established under California tax law. The state is aware of my transaction(s) as they are detailed on the forms used to register the vehicle. I note, for simplicity sake, I have not explained every last detail of my transactions here, but that close description isn't relevant to the general discussion.

One "interesting" byproduct of the transfer is that while the registration fees are higher, the insurance cost is lower -- so the net cost of registration + insurance is about the same when MT is compared to CA. The insurance company commented that MT LLCs are so often used by full timers, that the insurance rates are higher while having a private residence (even in a generally more expensive state) ends up with a lower insurance rating. Go figure.

Pete Masterson

'95 Blue Bird Wanderlodge WBDA 42

El Sobrante CA

"aeonix1@mac.com"

On May 26, 2008, at 2:55 PM, Leroy Eckert wrote:

I wonder if anyone on this site ever considers that it may be monitored by someone in the appropriate division of the taxing State. That goes for RV.net or any other site. It is open to the public. Perhaps they do not even have a BB but say they do????????Huh?

<snip>