Porsches and Prevosts on the Prairie
Legal issues involving the use of Montana LLCs to register exotic and expensive vehicles operated in other states
by Daniel Gillispie, Attorney at Law
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You may or may not be familiar with the phenomena of exotic cars and expensive RVs being titled and plated in the state of Montana, even though these vehicles might not ever touch tires in the state. I am not the first person to point this phenomena out –Doug Demuro’s article found on The Truth About Cars website, for one, is an enjoyable and informative read. Still, I thought I might go deeper on the legal angle of the use of these structures and provide my opinion on whether using them is a good idea or not.
Of course, in doing so I have to offer the standard disclaimer that nothing about this article should be taken as legal advice nor to establish any sort of attorney-client relationship and one should always consult with their own attorney to obtain an independent opinion regarding any sort of matter in which they require a legal opinion. Nevertheless, I think it is worthwhile and interesting for anyone to consider these issues, so here we go.
First off, how extreme is the use of these structures? Well, consider this fact: Ferraris are registered in Montana at nine times the rate of the United States as a whole. While I would believe this if we were talking about Subarus being registered at nine times the rate of the rest of the US, but as far as Ferraris go I have seen exactly one in Montana in the last 10 years I’ve lived here. (A 348, to be specific; I have also seen a Gallardo and a few 911 Porsches running around, but that’s about it.) Without a doubt, almost none of these Montana-plated exotic cars and high-dollar RVs actually exist in Montana.
So, is this legal?
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Short answer: no. Which is not to say that you cannot find even attorneys who are willing to contradict me. There are many websites which discuss the legality of these structures as basically being “legal in Montana, possibly legal in your home state.” On car forums, members confidently post that it is “totally legal!” In reality, these evasive LLC structures almost certainly violate the laws of the resident’s home state. What’s worse, I believe that otherwise well-meaning and law-abiding individuals are unknowingly engaged in illegal activity based on misinformation that they have received.
My analysis begins by asking why might someone use a Montana LLC to hold title to a vehicle? In my mind, there are at least three reasons:
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Avoid taxes, registration fees and other costs imposed by the state of residence
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Avoid creditors
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Avoid regulations relating to vehicle modifications or emissions in states that strictly enforce these rules
Of these three reasons, I think the most significant is the first, which is based upon the absence of a sales tax in Montana, and the relatively low cost to register a vehicle in Montana. Avoidance of home state sales tax can be a very strong motive for certain vehicle owners in high tax states. Massachusetts, for example, imposes a 6.25% sales tax. No doubt a painful $1,500 for the purchaser of a $25,000 Civic, but even more so for the retiree taking title of a half-million dollar Prevost, who will find him or herself contributing more than $30,000 to their state’s coffers. Certainly one can see why such an individual fortunate enough to be acquiring an RV that’s more expensive than the average house may find the $1,000 paid to establish the Montana LLC more than justifies itself with the $30,000 of tax savings. But as the saying goes, if it’s too good to be true, it probably is.
At least, that is the position taken by the state of Massachusetts, which on March 2010 issued an Office of the Inspector General report entitled, “Investigation Into Vehicle Registration Abuse” which specifically investigated Massachusetts residents registering RVs through Montana LLCs. In this report, the Massachusetts Inspector General concluded that the use of such structures was illegal when utilized “to avoid or evade taxes, fees, and other financial responsibilities.” In almost all circumstances, a Montana LLC formed for purposes of owning an expensive vehicle that will be garaged elsewhere is formed for no other purpose but to evade taxes. What is more, the Massachusetts inspector general also reported that it had, at that time, successfully collected $200,000 of taxes evaded based on the use of these structures, and that it believed that significantly more could be collected with a more substantial collection effort.
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So why doesn’t Montana do something about this? In short, why would it? It doesn’t cost the state anything to accept out-of-state fees to form the LLC and register the vehicles – in fact, it makes the state money! The taxes being evaded are being evaded back in Massachusetts (or California, or Oregon, or Minnesota, etc.), and not Montana. And the LLC is domiciled in the county in which the vehicle is registered, in compliance with Montana’s registration laws. The structure is totally legal as far as Montana is concerned! This, I believe, is the basis of the highly dubious claim to legality that I imagine are made by attorneys who provide these LLC services to the vehicle owners.
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The other reasons for using a Montana LLC to register a vehicle are probably much less common. As I am not a creditors’ rights attorney, I do not have any particularly strong feelings about using these LLC structures to avoid creditors. However, one must keep in mind that the structure illegally deprives the home state of revenue unless those taxes and fees are paid, which is unlikely; I have a hard time believing anyone is registering their Ferrari they wish to hide from creditors in Montana, and then cutting a check to their home state’s department of revenue to pay the proper taxes and fees on it. Additionally, vehicles operated in a particular state must be registered in that state after a relatively short period of time (often 60 or 90 days). So again, the out-of-state registration likely violates the law in the home state even if the reason it is used (avoiding creditors) may not necessarily be.
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The use of Montana LLCs to avoid stringent in-state emissions and inspections requirements is perhaps “less bad” from a moral point of view, and one I sympathize with as a gearhead, but at the end of the day the law of the home state is the law of the home state, and if it says that a vehicle garaged in that state must be inspected annually, well bud, you have to get it inspected annually, or you are violating the laws of your state. Don’t forget that federal emissions laws apply to all 50 states, either, so your aftermarket modifications advertised as for “off road use only” that fail to comply with federal emissions laws are just as illegal here as anywhere else.
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At the end of the day, it’s hard to feel much sympathy for someone who uses this scheme and later finds themselves owing the taxes, fees and perhaps even penalties that they should have paid in the beginning. The use of these avoidance schemes by those well-off enough to afford a 6-figure vehicle merely serves to shift the financial burden onto their neighbors, who aren’t driving a McLaren. Instead, they’re driving a Malibu with a leaking intake manifold they can't afford to fix, yet they still pay the fees the state says they owe because they have no realistic ability to avoid them. The Malibu owner paid their fair share, and so should the McLaren owner using the same roads and services. If you feel different please share your thoughts with me, as I am genuinely interested to hear the justifications for using these Montana LLCs that I may have not considered. But as of right now you know where I stand.
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Daniel Gillispie is a solo practice attorney based in Billings, Montana.