Daren J. Wilson bristles at the suggestion that the service he provides for RV owners around the country constitutes a “tax dodge.” The president of Action Services LLC of Missoula, Mont., prefers to say he’s using the laws of the state of Montana to give RV owners a “tax advantage.”
What he has been doing since early in 2003 is setting up limited liability companies (LLC’s) in Montana for buyers of pricey RVs across the country who wish to avoid paying hefty sales taxes on their units in their home states by purchasing them through their own Montana LLC’s. There is no sales tax in Montana, no personal property tax or ad valorem tax on vehicles, and there’s reasonable registration fees. So, it’s possible, said Wilson, to almost eliminate the taxes and expensive yearly registration costs through a Montana LLC.
Wilson’s company is among a handful of firms providing this type of specialized service in recent years. “We have helped thousands of individuals through company organization to minimize the overall cost of owning and operating their vehicles,” Wilson said in an interview with RV Business.
LLCs are a common business structure that offers the liability protection of a corporation with the favorable tax treatment of a general partnership. LLCs, according to Wilson, are much more flexible in their ownership, less formal to operate than a corporation and, if structured properly, can eliminate the need for tax return filing.
Companies are required to file an annual report to maintain their good standing with the Montana Secretary of State’s office. Wilson’s firm drafts the LLC’s articles of organization, files with the secretary of state, acts as the LLC’s registered agent, supplies a custom tailored operating agreement, processes title work, sends buyers new license plates and registration, and then renews the registrations each year. Initial services cost about $1,000, with an annual fee of $100.
Wilson, who also sets up LLCs for buyers of cars, trucks, boats and planes, goes one step further in drawing upon his connections with other Montana businesses. “We can assist you on how and who to purchase from, and finance and insure with,” said Wilson, who promotes his service by attending trade shows, exhibiting at Family Motor Coach Association (FMCA) conventions and advertising in magazines.
However, much of his business comes by word of mouth. “We work with dealers on a daily basis,” he said.
Wilson’s clients come from all walks of life, and he estimates that up to half of them are full-time RVers who often declare residency in states without state income taxes, thus further minimizing their tax exposure. “A lot are entertainers, race car drivers and rodeo people,” he explained. “It’s perfectly suited for them. It seems to help a lot of people to afford these big units.”
Wilson concedes the Montana LLCs are not for everybody. “It all comes down to the laws and statutes within the individual’s state of residence,” he said. “For the state, it’s a good profit center. It brings a lot of revenue to the state in registration and renewal fees.”
In the process, it also has irked countless other states, some more than others.
“Different states have made judgment on how they will handle it,” Wilson said.
The Montana LLCs have made headlines — and countless clients — in California, the destination of 11.5% of all RVs shipped in 2005.
For a state such as California, where in some counties the sales tax reaches 8.75%, the sales tax alone on a $200,000 motorhome approaches $18,000. Consequently, the LLCs have saved an estimated 10,000 California residents $160 million in sales taxes on motorhomes in recent years, according to Robert Morgester, deputy attorney general. His staff compared Montana vehicle records with California addresses to develop their estimates.
The Los Angeles Times reported that California has taken an aggressive position on the Montana LLCs, with the state launching its CHEATERS website in 2004. The acronym stands for Californians Help Eliminate All The Evasive Registration Scofflaws. Since its launch, the website has received 136,000 tips, the Times reported, and has brought in more than $1 million in back sales taxes from tax dodgers, including some RV owners.
The Montana LLCs are “an irritant” to states such as Texas, annually the No. 2 or No. 3 market for RVs behind California, reports Clark McEwen, executive director of the Texas Recreation Vehicle Association (TRVA). Texas assesses a 6.25% tax on all RV purchases. “We don’t want to see revenue not come to this state which we feel legally should be coming here,” said McEwen.
But beyond that, he said, “Texas state law says if you register your vehicle in a state outside your county of domicile to avoid paying taxes, that’s a crime.”
Yet, an unknown number of Texans use the LLCs, McEwen suspects, but he has no way to know how many. “The Texas Department of Public Safety patrol officers have more important things to do than stop people who are registered out of state,” he said, but added that violators run the risk of being stopped for speeding or being in an accident and then being charged for the tax evasion.
“We’ve got bigger fish to fry,” he said, “but it is an irritant to us. Maybe, someday down the line, we’ll all get together and maybe initiate some legal action.”