A typical transaction for an out-of-state buyer purchasing a recreational vehicle in Montana involves more than signing over the traditional paperwork.
According to a report in the New York Times, part of the process includes establishing a limited liability corporation, allowing the buyer to take advantage of Montana’s lack of sales tax and miniscule registration fees.
“I was skeptical,” said Stuart Reid, a retired elementary school principal who recently drove from Nevada to purchase a vehicle at Bretz RV and Marine. “I’ve seen different kinds of tax dodges and things. But the more I read about it, I learned it was entirely legal.”
By coming to Montana to set up a corporation, the Reids estimate they will save about $15,000 in Nevada sales tax and $3,500 in Nevada registration fees.
Like an island nation with favorable tax laws that allow corporations to create a headquarters solely to avoid paying United States taxes, Montana is a haven for a growing number of retirees who are hitting the road in new motorhomes.
The phenomenon of forming a corporation in Montana to skirt sales tax is the talk of RV campgrounds and chat rooms and brings those with wanderlust here from all over – California, Florida, even overseas – to buy a luxury vehicle that typically costs $150,000 to $300,000 new at Bretz or to register one bought elsewhere.
The Reids, happy nomads, sold their house in Las Vegas and traded in their smaller RV for a high-end purchase. Their new model is equipped with a talking global positioning system receiver; Wi-Fi for cruising the Internet; a satellite dish for television reception; and XM Satellite Radio.
Like many other vehicles, theirs will be registered in Missoula County, which has a population of just 99,000 yet ranks fifth nationally in the number of RV registrations in the last three years, according to Statistical Surveys Inc. It trails Los Angeles County, San Diego County and Riverside County in California and Maricopa County in Arizona. In Missoula County alone, the number of registrations rose to 1,193 in 2004, a 59% increase from 2002.
Along with having no sales tax, which can be more than 8% in some parts of the country, Montana charges a registration fee that tops out at $305.50 for a new motor home. Other states charge a percentage value. The Reids said that Nevada would have charged 1%. Montana also has no vehicle inspection. In return, the couple will pay legal costs that typically run $750 to $1,000.
Though Montana considers the practice legal, some states take a hostile view. “It’s really tax evasion,” said Mike Gowrylow, a spokesman for the Washington State Department of Revenue. “It’s a sham, set up to avoid paying taxes in your home state.”
States like Washington that want to collect what they consider their due first have to track down the roving owners, whose addresses are available only in the corporate paperwork in their lawyers’ offices.
Gowrylow says that to find the cheats, as he calls them, “You have to see them on the road.” He added, “When the state patrol stops someone with a Washington license and Montana plates, we are going to be very suspicious.”
Washington State has identified about a dozen people who have set up limited liability corporations in Montana and has ordered them to pay the tax and up to 35% more in penalties and interest. One case was overturned on appeal. None have been prosecuted criminally.
The California Highway Patrol also considers the process unlawful and has a “cheater’s hot line” that encourages people to drop a dime on a neighbor if they see an RV with out-of-state plates parked for a long time in the driveway.
Dealers in other states tend to rebuke those from Montana at industry gatherings. “We get pistol-whipped pretty badly because other dealers think we’re stealing their business,” said Denny Anderson of Gull Boats and RV in Missoula.
But John M. Bennett, a lawyer here who has created limited liability corporations for nine years, defends Montana’s approach as legitimate. “There’s no fraud going on,” he said. “There’s a perception these aren’t real companies. But they are. They meet the minimum requirements of Montana law.”
For out-of-state buyers, Bennett researches the laws of their home states to make sure they do everything they can to avoid a use tax when they return home. Californians, for example, must keep the vehicle out of state the first year.
Avoiding taxes on such big-ticket purchases is nothing new. People have long taken delivery of expensive items in states with favorable tax laws. Many states insist that their residents still owe a sales or use tax, no matter where the item is shipped or bought, but tracking down such sales can be difficult. In Montana, Bennett has created limited liability corporations for yachts, planes and luxury cars, though state laws typically make it harder to avoid the associated taxes and fees.
For motor coaches, many people used to travel to Oregon, which also has no sales tax and low registration fees. Oregon has since made it more difficult for out-of-state buyers and even helps other states track down people who go there to avoid taxes.
But in Montana, the buyers’ names are not disclosed, and limited liability corporation requirements are few. “It’s legal,” said Brenda Nordlund, assistant attorney general for the Montana Department of Justice. “It’s a policy choice we’ve made.”
And so the buyers come, to fly the Montana flag of convenience. Mark Bretz, president of Bretz RV and Marine, says up to a third of his business comes from out-of-state buyers. He often gives away a few free nights at local campgrounds while buyers wait for the paperwork, which can take a day or a week, depending on the complexity, and he sometimes pays for airline tickets.
Bennett will not say how much of his business comes from such corporate setups, but allows it is substantial and can be done without even setting foot in Montana.
Montana’s law is perfectly legal, said Walter Hellerstein, a law professor at the University of Georgia and an expert on the state taxation of interstate commerce. “It’s not fraud to play whatever games the law allows you,” Mr. Hellerstein said.
Marcus Lemonis, chairman and chief executive of FreedomRoads, which is based in Illinois and has become the largest RV dealer in the country through a string of dealerships, does not agree. He refuses to set up limited liability corporations for his clients, and his company hopes to change the Montana law.
“Plenty of dealers around the country, in and out of Montana, advocate this process,” Lemonis said. “But it seems wrong.”
Another complication for states seeking to recover taxes is the peripatetic nature of the nation these days. Many RVers, like the Reids, are “full timers” who no longer have a stationary home. The Reids have a book called “The Next Exit” that describes activities off all the nation’s Interstates, and they plan to average 150 miles a day, at 6 to 10 miles on a gallon of gas, before someday buying a house in East Texas.
Becky and Boyd Baldwin, who lived for years in Montana and recently bought a new coach at Bretz RV, said Montana license plates could be misleading. When they parked at a campground in Naples, Fla., they noticed two RV’s with plates from Missoula on them.
“I thought, ‘Great, Montana people,’ ” Baldwin said. “I went to introduce myself, and they had no interest whatever. They were L.L.C. people. ‘We’re from New Jersey,’ they said. ‘Someone drove them out for us.’ “