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Montana’s lack of sales tax is translating into big bucks for recreational vehicle dealers, according to a report in the Billings Gazette.
Shoppers from across the country are coming to the Treasure State and forming thousands of limited-liability corporations (LLC) to avoid sales tax when purchasing RVs.
According to the paper, Montana has one requirement when it comes to out-of-state residents and sales tax: that the purchase be made via a business entity, the simplest of which is an LLC.
Dean Roberts, head of the Motor Vehicle Division at the state Department of Justice, estimates there are 4,000 to 5,000 LLCs in Montana established solely for the purpose of buying RVs.
The windfall from increased out-of-state RV registration fees has translated into at least $3 million in annual revenue.
“(Consumers) are looking to register in a state that offers lower registration fees than the competition,” said John Bennett, whose Missoula law firm specializes in establishing LLCs. “Right now, Montana is the prettiest girl at the dance because it doesn’t have a general sales tax and it doesn’t have a specific tax targeted at RVs.”
Mark Bretz, president of Bretz RV and Marine in Missoula, said he sells about 40% of his new RVs to LLCs. The city, with its position between Glacier and Yellowstone national parks, has become a hub for limited-liability corporations. Online advertising and a growing network of RV campgrounds around the country have also helped.
Bennett said his law firm has helped thousands of clients avoid paying state sales tax, and has processed so many LLCs the Montana secretary of state’s office lowered the handling fee.
The practice is not very popular with other states, Roberts said.
“There is a question of whether Montana has some obligation to protect those tax bases in other states,” he said. “We do have pressure from other states to change our law, because they are not getting their taxes.”
Three years ago, legislation was proposed to close the loophole that allows vehicles to be registered in Montana without being “garaged” here. It was defeated by lobbyists representing LLC lawyers and RV dealers, Roberts said.
In Washington state, the Department of Revenue has collected more than $10 million in three years from residents who have tried to avoid paying sales tax by purchasing and registering their RVs in other states.
Many states use tips from disgruntled neighbors to find and prosecute falsely registered vehicles, while highway patrol officers report suspicious rigs when they find in-state residents driving vehicles with Montana plates.
“I would advise them not to do this unless they plan to use the RV outside of the state for a substantial period of time,” said D. John Thornton, a Boise, Idaho, tax lawyer. “There is no validity for a business set up just to avoid paying sales tax.”