Thousands of Americans are avoiding millions of dollars in taxes by registering their motorhomes in Montana — and there’s not much anyone is doing about it.
The Kansas City Star reported that many state officials elsewhere, including those in cash-hungry Missouri and Kansas, bitterly complain that the tax-free RV road show is turning the Treasure State into a tax scofflaw haven.
“This is a tax scam and fraud,” said Matt Moser, manager of the Title and Registration Bureau for the Kansas Department of Revenue.
Whether it is legal depends on whether you’re talking to state officials and lawyers in Montana or other states. Montana authorities maintain it is completely legal. Missouri and Kansas officials argue it isn’t.
Legal or not, the practice has been going on for years and appears to be growing.
Kansas and Missouri motorhome enthusiasts taking advantage of the loophole in Montana law, for example, can save up to $10,000 a year in taxes on a $150,000 vehicle. In Montana, registering that same motorhome costs about $1,300 in fees and legal costs.
Dean Roberts of the Motor Vehicle Division for the Montana Department of Justice estimates that officials have registered about 30,000 motor homes for people living elsewhere, bringing in about $5 million in registration fees a year for the state – a fraction of what other states are losing in taxes.
“It’s pretty extensive, and it’s becoming more popular,” Roberts said. “From our perspective, there’s something ethically wrong about it, but there isn’t anything we can do about it at all, because it’s perfectly legal from Montana’s standpoint.”
Here’s how it works: A person who wants to buy an RV establishes a limited liability company, or LLC, in Montana. Then the RV is purchased and registered under the name of the company — not the individual. Under Montana law, a business may legally own a vehicle, even though the owner of the business does not reside in the state and the vehicle is not “garaged” there.
John M. Bennett, a Montana lawyer who helps RV owners in Missouri, Kansas and other states set up the corporations, called the practice tax avoidance, not evasion.
“By establishing a limited liability company, you’ve made a legal registration in Montana,” Bennett said. “And if the client also complied with the exemptions from their state’s tax laws, then it wasn’t evasion. It was legal tax avoidance.”
Montana’s attorney general proposed legislation in 2001 to close the loophole, but lawmakers sided with Bennett and other lawyers in viewing the practice as a way of avoiding taxes.
“This is a practice that has been sanctioned for a while,” said Brenda Nordlund, an assistant Montana attorney general. “There is a philosophy in the state that, ‘Why can’t we capitalize on low registration and being different in terms of our tax policies compared to other states?’?”
Because Montana has no sales tax, no property taxes on vehicles, and relatively low registration fees, an RV owner can save a bundle. And because of the way the business is set up, the name of the RV owner isn’t traceable, which makes law enforcement authorities nervous if criminals or terrorists ever decided to use a motor home for evil purposes.
Records show only the name of the limited liability company, whose address is generally listed as that of the Montana attorney who handled the paperwork.