Montana LLC

New member and coming here from the fulltiming RV crowd. You can often (not always) tell a full time RVer if they have Montana plates. They bought their rig using a Montana LLC with no sales tax payable on the rig. The title to the rig is in the name of their MT LLC and their personal state of domicile is of zero consequence - including sales tax, registration cost and plates. It is a process that works extremely well for travelers in that they rarely are in their domicile state (I've been in mine for probably a total of two weeks in the past 5 yrs) or in any other state for considerable consecutive periods of time. And even if they are, the RV is not owned by the traveler. And when you sell, you sell the corporation.


So as I shop for a Great Loop and live aboard boat to replace my RV and to supplement my wandering spirit, I wonder if anyone uses a MT LLC to purchase their boat whether it be a state registered boat or a documented one. I presume one would have to put a MT city on the transom as 'home port.' Have there been any REAL issues (not imagined ones of possible 'domicile police') that resulted in adverse action? It is not a huge issue for me in that my official domicile state is and has been So Dakota for some years which imposes a relatively low 3% sales tax. But since I'm basically never in the state and the boat will NEVER be in the state, I have some difficulty coming up with a reason to even pay them 3%.


Thank you.

http://www.trawlerforum.com/forums/s3/where-should-we-register-our-boat-fl-ga-sc-nc-40579.html


I have more questions than answers on the subject. Here is a link to a recent thread that is related but has no mention of Montana that I recall. The other difference with your situation is The Loop. If you are on the move and not docked for any significant length of time, it might change things. Especially if you might sell the boat upon completion of your loop. I have heard of people using Delaware for the LLC.

Boats are even easier since there is federal documentation, ie title.


If you are a full time liveaboard cruiser and move around season to season, just buy the boat, document it, don't pay any state sales tax and as long as you keep moving around there is no sales tax liability. Sometimes you have to sign an affidavit saying that you will move the boat away from the state you bought it within 30, 90 days or so.


I did this for several of the boats I have owned and never paid a dime of state sales tax. Perfectly legal.



David

djmarchand said:

I did this for several of the boats I have owned and never paid a dime of state sales tax. Perfectly legal.

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Legal providing that you don’t actually ever stay in a given state longer than their state laws allow.

djmarchand said:

Boats are even easier since there is federal documentation, ie title.


If you are a full time liveaboard cruiser and move around season to season, just buy the boat, document it, don't pay any state sales tax and as long as you keep moving around there is no sales tax liability. Sometimes you have to sign an affidavit saying that you will move the boat away from the state you bought it within 30, 90 days or so.


I did this for several of the boats I have owned and never paid a dime of state sales tax. Perfectly legal.



David

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But many of those states you were in required registration and while you might have escaped sales tax based on time before you entered them, you couldn't have escaped the requirement to register.

If you bought it in FL, you wouldn't have escaped the sales tax requirement either as you're required to report back. Now, not saying they would have come for you, but legally you'd be required.

There are other "I gotchas".....

It may be perfectly legal in some circumstances, probably not all.

Just because a boatload of people get away with it, doesn't make it legal.

Check with a tax person and be sure to ask what happens if you ever enter your legal state of residence....and I am not sure how you get away with not having your registration which usually triggers sales tax in a different state than your legal residence unless active duty military or other similar circumstance.

dhays said:

Legal providing that you don’t actually ever stay in a given state longer than their state laws allow.

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I agree with Dave. Seems some of this avoidance of playing by the rules is not really conducive to the spirit of the law and lifestyle. Its the American way to work within the system to pay least amount of taxes due, but we all enjoy the benefits of the system....

When I have suggested that people should follow the law and pay their own way it is often met with hostility, anger and hostility. Free stuff for everyone!

Last time this came up it raised an interesting question. When visiting a state, many exempt you from registration and tax if you have a “valid registration from another state”.

The question is whether a vessel documented and in compliance with your home state meets that requirement when your home state does not register documented vessels. In other words, is documentation alone enough to meet the requirement when your state doesn’t register documented boats. Or do you technically need to immediately register in the first state you enter that does require a state registration, and do you then become compliant everywhere else?

Don’t bring the boat into Michigan without it being registered somewhere. On the Looper website there have been many reports of people being stopped in Michigan when they were not registered even though they were documented. RVs are probably easier to fall through a crack without paying state tax since they are much easier to move and the highway patrol isn’t looking for RVs that didn’t pay sales tax, however a lot of on the water law enforcement do. States want the revenue from the boat sales tax and we are a slow moving target...

Actually, I would think RVs would be tougher.

With a boat, you can live in one state, register it in another and have the documentation/title in another. The states at that point have to prove which state you do or don't have to pay taxes in...well ok ..you have to provide the documentation to NOT pay whichever state calls your bluff.

For RVs, as far as I know, you have to be licensed in your "domicile" state and everything motorized needs to be registered there too. Unless military or another exception.

When you register, it usually triggers a inquiry about sales tax.... if pertinent in that state.

Just because you own an LLC in Montana or elsewhere, if the only thing owned is a boat or RV, and there isn't any associated business, and it is NOT your state of domicile.... I can pretty much guarantee at least in NJ, the tax division will slap you silly about taxes and fines. I have seen tax case law on this and I am pretty sure they can add fraud from what I have read.

Whether you get caught us another story.

When we bought our boat it was owned by a LLC, and it was the only asset of the LLC I believe. So we had to decide if we should buy the LLC and not pay any sale Tax or just buy the boat. After consulting with a maritime attorney, we just bought the boat. His advice was this: If the LLC was created to just hold the boat, the state will eventually catch up with you. You will then pay the sales tax due plus any penalties due. I sleep better at night.

The states know about this and have recently started cracking down on high priced sports car purchasers trying to cut them out of sales tax. If they aren't looking closely at boats already they will soon.
Don't stay in any state for more than 90 days and you might be able to keep this going but once you stop a tax collector could be coming after you. For the purchase price and tax rate you mentioned it wouldn't make sense for me.

Jeez! its an expensive hobby/lifestyle. Why not just pay the entrance fee? Part of the buying consideration, is taxes,insurance,slip fees and projected maint and repair,upgrades....Am I missing something here?

Sorry Jack .....I would love to just say no..... but I think the reason for all the interest is.....

Why pay when you don't have to?

But it's pretty normal to be aligned with paying some sort of tax.

For those willing to jump through the right hoops, good for them....and good for the tax man that catches up with them if they violate the loopholes...the few that are out there from my interest in it all....

Of course, these conversations are all theoretical I gather....and certainly not traceable documentation of planning tax evasion ;-)

I think as far as taxation agencies go, boats and RV's are quite different. People generally leave their boats at marinas for some time. Whereas RV's are in private storage. Sales & property tax folks have been walking docks for as long as I can remember. I guess agents could cruise Walmart parking lots and do research on RV's there, but it's a long shot.

One of my local friends had a Nordhavn. And no, not one of the big expensive ones. A 40. But he's a character and didn't want to pay the tax. So for seven years he had all these convoluted procedures, mostly around keeping the boat in Sidney BC. So in order to get to the boat, he had a day of travel time each way. And he couldn't enjoy his boat in Washington waters for any length of time.

Then maintenance and a family situation conspired against him about seven years in and his boat overstayed its welcome in WA. Bammo, sales tax bill! Looking back he says it was foolish and cost him a lot of time and effort for zero net result.

If you put the boat in an LLC, and pay the tax, when you go to sell you have an advantage over non LLC boats. I don't disagree with Russell above on the safest way to go, any atty will advise that. But every buyer won't. After some due diligence I would buy a boat in an LLC with sales tax already paid.

I wrote a HUGE check for sales tax on our boat. But I just want to enjoy using my boat for a decade and not have any situations waiting to pounce on me. Boat ownership is hard enough without having to worry about the gov't coming after me. In my head and calculations, the tax was always built into the price of the boat.

Best of luck with your plans.

twistedtree said:

Last time this came up it raised an interesting question. When visiting a state, many exempt you from registration and tax if you have a “valid registration from another state”.

The question is whether a vessel documented and in compliance with your home state meets that requirement when your home state does not register documented vessels. In other words, is documentation alone enough to meet the requirement when your state doesn’t register documented boats. Or do you technically need to immediately register in the first state you enter that does require a state registration, and do you then become compliant everywhere else?

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State officials tend to understand their own state laws and, in many cases, those of neighboring states. I would imagine that if you entered a state that requires you have registration, or be registered in another state, you may be fine by explaining (with proof) that you are fully in compliance with your home state’s laws. Now, you may also be expected to actually prove that you do actually live in that state.

For example, if a state wants to see your boat registration and you say you are from Colorado (not a real example) and Colorado doesn’t require boat registration, they may call BS as it is obvious that your boat never is used in Colorado.

So why not call up the tax collector in the appropriate state and ask them? Too easy?

I did, before purchasing an LLC that had a boat as the sole asset, and was told that it was a known loophole and that it was completely legal. I saved $18k in sales/use tax.

I am still liable for state fees since we registered it in Florida, but yearly registration as an antique is only $10 a year (the tender registration is more!). We are documented, but didn’t want to bother with all the tricks and rigamarole involved with avoiding state taxes., so we registered in the place we will spend the most time.

BTW, the LLC is in Colorado, the homeport on the transom is in California and the registration is in Florida.

Russell Clifton said:

When we bought our boat it was owned by a LLC, and it was the only asset of the LLC I believe. So we had to decide if we should buy the LLC and not pay any sale Tax or just buy the boat. After consulting with a maritime attorney, we just bought the boat. His advice was this: If the LLC was created to just hold the boat, the state will eventually catch up with you. You will then pay the sales tax due plus any penalties due. I sleep better at night.

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Why did you consult a maritime attorney? Wouldn’t an accountant or tax attorney been more appropriate?

dhays said:

State officials tend to understand their own state laws and, in many cases, those of neighboring states. I would imagine that if you entered a state that requires you have registration, or be registered in another state, you may be fine by explaining (with proof) that you are fully in compliance with your home state’s laws. Now, you may also be expected to actually prove that you do actually live in that state.

For example, if a state wants to see your boat registration and you say you are from Colorado (not a real example) and Colorado doesn’t require boat registration, they may call BS as it is obvious that your boat never is used in Colorado.

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We are mass residents, and our boat is (was) documented. And as Mass residents, it would be the most logical state to register in. That's where we registered the tender, for example. But Mass doesn't register documented boats. We traveled up and down both the eastern and western sea boards with this status, operating on the presumption that we met the rules for visitor status because we were properly registered in our resident state, based on our resident state's rules.


I've never been stopped, so never tested it, but that's what I would have argued, and because I think it's the sprite of recognizing and accepting that visitors who are properly registered elsewhere.

Woodland Hills said:

Why did you consult a maritime attorney? Wouldn’t an accountant or tax attorney been more appropriate?

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You go ahead and check with a accountant. I'll check with a attorney that specializes in maritime law.

The advantage of an LLC owned boat is two fold.

First you get a layer of protection between you and the boat should there be a liability claim.

Second, when you go to sell, the new buyer can purchase the LLC and there by avoid paying sales tax.

Now if the new buyer wants to move the boat to another state Things will get a bit complicated. I would want to consult a tax attorney before I tried to register a boat in Washington that was owned by a California LLC, owned by a Washington resident.

The LLC still has to pay sales tax when it purchases the boat.

As far as I know, if you are the sole owner of the LLC and you are operating the boat, you aren't protected from liability.

That's why I ditched my LLC as a delivery captain....it only protects your assets from employee screwups.

psneeld said:

As far as I know, if you are the sole owner of the LLC and you are operating the boat, you aren't protected from liability.

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The LLC will protect the boat not the operator. If the boat catches on fire and burns down the marina, you have an additional layer of protection. The LLC will also protect you if some one else is operating your boat.

tiltrider1 said:

The LLC will protect the boat not the operator. If the boat catches on fire and burns down the marina, you have an additional layer of protection. The LLC will also protect you if some one else is operating your boat.

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I didn’t state this very well. The boat it’s self is still at risk. The owner of the LLC is not at risk. If the owner happens to be operating the boat then he is at risk as the captain but not as the owner. As psneeld stated, not much help there.

tiltrider1 said:

The LLC will protect the boat not the operator. If the boat catches on fire and burns down the marina, you have an additional layer of protection. The LLC will also protect you if some one else is operating your boat.

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I will buy the protection from another operator...if operator error.

If lack of maintenance, etc that results in a collision....whether someone else is driving or if you do something heavy on the negligent side and the boat burns plus the marina....I wouldn't hold my breath that you won't be named in the suit and possibly included in the liability no matter what.

The more questions I asked about LLCs to my lawyer, the more disillusioned I became. Great for small businesses with employees and tax dodges like we are talking about...but even the tax advantages are eroding like others have posted.

I may be wrong about this but I believe your comments about an LLC owned boat not being registered are incorrect. Even if the boat is the sole asset of the LLC.


The LLC is registered with the state it's licensed in. The boat is registered in that state under the name of the LLC the same as cars or trucks used by the LLC would be registered in the state and licensed to the LLC.


It's no different from Joe's Heating and Air Conditioning LLC owning a fleet of repair trucks. They are all licensed and registered in the state under the name of the LLC.


The only thing the LLC saves is paying sales tax.

psneeld said:

I will buy the protection from another operator...if operator error.



If lack of maintenance, etc that results in a collision....whether someone else is driving or if you do something heavy on the negligent side and the boat burns plus the marina....I wouldn't hold my breath that you won't be named in the suit and possibly included in the liability no matter what.



The more questions I asked about LLCs to my lawyer, the more disillusioned I became. Great for small businesses with employees and tax dodges like we are talking about...but even the tax advantages are eroding like others have posted.

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I am a part of three LLCs. They don’t provide any liability protection, they simply provide convenient buckets in which to place separate businesses.

An LLC does provide a large degree of protection for boat owners specifically. Under US admiralty law a vessels liability in a maritime claim, including third party injury, is capped by the value of the vessel and freight (if any). The only exception to that is gross negligence by the owner. Not ordinary negligence. Gross negligence has a very high standard to bust. Owner must have known of defect and refused to correct. (A good example would be hiring a Captain who was known to be a drunk and the vessel was involved in a collision with injury and the Captain was inebriated, in which case the limitation of liability of the vessel is breached. The Captain bing inebriated is not in itself gross negligence, The owner had to have known in advance and have a reasonable expectation that failure to remedy would result in injury). The suit is against a vessel ‘in rem’, and would be improper against the owner of the vessel. A good maritime defense attorney would have a civil suit that had been filed in any inferior court removed and brought under admiralty law that is heard in Federal Court, which is the proper venue.

Ok, I get that this concept might be foreign to many. But insurance companies know the rules and hire good maritime attorneys to mount proper defenses. I have seen multi million dollar cases settle for peanuts because of this rule.