Colorado Convicts MT Registered RV's

[blueblood]

RV Business
Wednesday, May 21, 2008

State authorities brought civil and criminal charges against Colorado residents who registered recreational vehicles worth up to $400,000 in Montana to avoid local taxes and registration fees.

The Denver Post reported that the offenders registered recreational vehicles only in Montana, which does not charge sales taxes on motor vehicles and has low registration fees. But Colorado residents must pay sales taxes and registration fees in Colorado, said Mark Couch, spokesman for the Colorado Department of Revenue.

The Colorado Attorney General's Office and the revenue department working together obtained misdemeanor tax evasion convictions against 12 people living in Jefferson, Boulder, Arapahoe and Weld counties, Couch said.

They each received deferred sentences, and were also ordered to pay restitution to the state, register their recreational vehicles in Colorado and perform community service, Couch said.

The Revenue Department also took civil action against other Colorado residents who owned recreational vehicles registered in Montana. The state billed 122 recreational vehicle owners $2.7 million in unpaid sales taxes, penalties and interest.

 

[Wendy]

This was the lead story on Denver's 9 News this afternoon. Sounds like the 12 pled guilty. Makes me glad I paid the sales tax on our motorhome when we bought it.

Keep in mind that the RV owners involved registered their RVs in Montana for the sole purpose of avoiding paying sales tax and high registration fees in Colorado, their state of residence.

Wendy
Cortez CO

 

[Ned]

Keep in mind that the RV owners involved registered their RVs in Montana for the sole purpose of avoiding paying sales tax and high registration fees in Colorado, their state of residence.

That's the only reason anyone uses an LLC in Montana if it isn't already their domicile.  It will be interesting to see if the popular domicile states (TX, SD, FL) take similar actions.

 

[Ron]

Somehow this doesn't surprise me at all and I wouldn't be surprised to see similar actions take place in other states.  I believe there is similar activity being taken by several states based on things I have heard.

 

[Wendy]

That's the only reason anyone uses an LLC in Montana if it isn't already their domicile.  It will be interesting to see if the popular domicile states (TX, SD, FL) take similar actions.

Just love living in a cutting edge state 

 

[Ron]

But if you're a full-timer and you pick Montana as your domicile and set up an LLC, then you're not breaking any state laws. It's the folks who still actually live in another state who are getting slammed in Colorado and probably other states soon.

Just love living in a cutting edge state 

Wendy
Cortez CO

Many states require you license vehicles and have them in their state if you remain there for a specified period of time.  The state of Washington is a real good example.  Some state consider a vehicle stored in their state as being garaged there.

 

[Ned]

Wendy, that's what I said.

 

[Jeff]

Just love living in a cutting edge state 

Wendy:

Colorado is not really on the cutting edge here; Illinois, Washington, Indiana, and several other Midwest States have used use in the state as the basis for determining the tax status of vehicles, aircraft, etc for years. Illinois and Washington do not care if you register your RV in Montana as an LLC, their position is if you bring it into their state and use it for more than 30 days while you have a presence there you are liable for state taxes. I remember a case where Illinois took Sunstrand Corporation to court at least 20 years ago.

IMHO what is happening now is stepped up enforcement as all governments look for new revenue.

 

[ArdraF]

Actually I believe the precedent was set a long time ago with automobiles in California, Nevada, and probably most other states.  If you have a vehicle in the state for more than 30 days and you are living there, it is subject to registration in that state - along with all the fees.  An example is someone who works in California and lives there, but has a car that is registered for example in Illinois.  If the person also has a valid address in Illinois and that is their permanent home where they vote, etc., then they are a temporary resident of California.  But if they reside primarily in California then it becomes an issue I wouldn't want to try to defend in court.  "Domicile" is defined differently by each state and it behooves anyone trying to avoid paying taxes or registration fees to find out how the states involved define it.  Usually it is not just one factor but many, including voter registration, physicians, church membership locale, and the like.  If you Google the words Domicile California, you'll see that state distinguishes between domicile and residency.  You can substitute any other state for California and things like college tuition (inexpensive state resident fees or expensive out-of-state fees) come up.

ArdraF

 

[Gary RV_Wizard]

A "use" tax is not the issue here - "use" taxes have been around for ages and are in force in nearly every state that has a sales tax. Courts everywhere have upheld the concept of a use tax.

The thorny issue here is that the vehicle in question is owned by an out of state entity, NOT the person who is being charged with tax evasion. I will be  very surprised if somebody with deep pockets does not challenge this very notion in the federal courts.

 

[Jeff]

A "use" tax is not the issue here - "use" taxes have been around for ages and are in force in nearly every state that has a sales tax. Courts everywhere have upheld the concept of a use tax.

The thorny issue here is that the vehicle in question is owned by an out of state entity, NOT the person who is being charged with tax evasion. I will be  very surprised if somebody with deep pockets does not challenge this very notion in the federal courts.

Gary:

In Illinois and Washington if you buy the vehicle out of state you do not pay as sales tax, that is collected by the IL or WA dealer at the time of sale, instead you pay a "Use Tax" that is basically sales tax minus the local portion of the sales tax. The entity that owns the vehicle is iirrevelant, the person (or corp)using it in those states is liable for the tax.

 

[Ron]

Gary:

In Illinois and Washington if you buy the vehicle out of state you do not pay as sales tax, that is collected by the IL or WA dealer at the time of sale, instead you pay a "Use Tax" that is basically sales tax minus the local portion of the sales tax. The entity that owns the vehicle is iirrevelant, the person (or corp)using it in those states is liable for the tax.

Many states are like that and there have been a few big companies that have found out the hard way let along an individual.

 

[John From Detroit]

Use tax or Sales tax are basically two names for the same tax  "Use" means you "Imported" the product.  And you are require to print it even if you mail order a package of seeds for your garden.

As for Roamer's comment that the vehicle is owned by a corporation in another state

The problem here is that the out of state LLC is owned by the person who is being charged, The corporation was set up for the expressed purpose of EVADING the tax laws of it's owner's home state... This is, per assorted judges. fraud (As the original story proves) 

As an example. I recently studied insurance laws.. If we (Meaning this forum) decided to legally incorporate for the purpose of obtaining group rates on insurance... We would be denied group rates.

On the other hand if we incorporated for the expressed purpose of supporting thei forum (For example: We are concerned that some day, hopefully in the very far furture, Tom will no longer be able to run this forum so we want a company, likely with him as the CEO (That's cheif Everything Officer) to provide for the forum so if something happens to him there are others (Ron for example) who could step in and deal with the host corporation)  And then we decided to apply for group rate, SECONDARY to the purpose of providing for the forum.... We are good.

Now.. If I were to extablish say the J F Davis Trust as a Montana LLC, and then allow you to buy "Shares" in my LLC, and then "Lease" you a motor home, with a value equal to your shares in the LLC, ..... That might just work

Since I'm the owner of record of the LLC and you are nothing but a non-voting share holder

 

[Ron]

Still many states require vehicles parked and used for more than a specified number of days in their state be licensed in their state. In Washngton it is 30 days.

 

[Gary RV_Wizard]

The entity that owns the vehicle is iirrevelant, the person (or corp)using it in those states is liable for the tax.

I'm skeptical of that, Jeff, and the Illinois Dept of Revenue web site does not indicate that. It says:

If the seller (typically an out-of-state business, such as a catalog company or a retailer making sales on the Internet) does not charge Illinois Sales Tax, the purchaser must pay the tax directly to the department.

A use tax applies to the PURCHASE of something, not the simple use of it.  If I BORROW an item from somebody else, whether in or out of state, I am not liable for a "use tax" on the item. There may be fees or taxes that can be assessed on the owner of the item (the LLC in this case), but how do you tax the user who does not own it?

The complication with the typical LLC set up is that the user/borrower and the owner of the LLC are one and the same, so that the RV is essentially borrowed from your self. And if the LLC has no reasonable purpose other than sheltering the RV from sales & use taxes, there is ample reason for a claim of tax fraud.

 

[Wendy]

We live in Colorado. We bought our motorhome in Washington. We thought about registering it in a different state (Oregon, Montana). We decided not to since our sole reason for registering it in another state would have been to EVADE (not Avoid) paying Colorado sales tax. When we registered the RV here, we paid a big hunk of money in sales tax because no sales tax had ever been paid on this RV. The folks who are now paying huge sales tax and vehicle registration bills in Colorado live and work in Colorado but registered their RVs ourside the state for the SOLE purpose of EVADING paying sales tax in Colorado. And tax Evasion is illegal.

Wendy
Cortez CO

 

[JerArdra]

Even with Federal Income Taxes the law says that if the "tax shelter" has no other purpose except to avoid taxes it is illegal.  Tax shelters must prove that there is/was a reasonable chance of making money.  Many tax shelters have been disallowed on this point.

JerryF

 

[Dave Stringham]

Many years ago, when I was still owning and operating a semi, I had 2 bases with residental address in each state. My truck was registered in Nebraska who had favorable apportioned plate fees and my drivers license was from Nevada which at that time had no resprocity with other states for tracking traffic tickets (if you didnt get the ticket in Nevada, they didnt care and it didnt go on your record).  However, my downfall was that I grew up in Lancaster California and every week I came through there and dropped my laundry at my moms house while delivering in LA and on the way out I pick up the laundry.  I had enemied a once old friend who was a CHP officer.  He stopped me and wrote me a ticket for not having calif plates.  I went to court to try and fight this ticket and because he could prove that I spent as much time in California as I did in any other state and could prove a "base" in Lancaster, I lost that case and had to have Calif approtioned plates.   Granted, this is not the exact same thing as trying to avoid sales or use tax but I was avoiding California license fees.....its all about the $ and revenues......and the cop didnt like me anymore either  :

These licensing laws in California were written just for this purpose. Granted, it is not unusual to see out of state rv rumbling up and down the highway, but if you sent someone to drive up and down residential streets or through storage yards and start writing down plate numbers on rv's obviously stored or parked, it would be pretty easy to get lots of evidence that would prove evasion.

 

[tswms]

Recently we had a  Arkansas county court judge who licensed his new MH in MT.  He was prosecuted for sales tax evasion. He not only had to pay tax and peneltys, but was given jail time.
The judge ruled that he of all people should know the law.
Tony

 

[KodiakRV]

Still many states require vehicles parked and used for more than a specified number of days in their state be licensed in their state. In Washngton it is 30 days.

Does that mean if you wanted to visit the state of Washington for 6 weeks in your RV, you would be expected to transfer the registration to there?