Montana LLCs

[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