Monday, October 08, 2007

Avoiding tax on your RV

"I have heard that you can buy an RV in a non sales tax state and if you live on the road (no state residency) - you don't have to pay taxes for it! Any truth?"

Good question. Here's the logic (I'm not saying it's the law, just the logic):

Generally taxes apply first where the property is delivered. So let's say that George buys an RV in the no-sales-tax state of Nomadia (I'm making that up - there's no state called Nomadia). As far as the dealer is concerned, there's no sale tax and George skates. But there have to be plates on the RV, so George gives his sister's address in Nomadia, where he gets his mail, including the bill for the insurance on the RV, as well as his forms from the IRS, etc.

Then George drives his RV around with no permanent residence.

But early next year, when George comes through town to pick up his tax forms, he'll also find a form for his state income tax for Nomadia. See, as far as the state is concerned, since he has registered the RV in Nomadia, that must mean he's a resident of Nomadia. Which means he now owes Nomadia income tax. And the reason they don't have a sales and use tax is that they have a really obnoxious income tax. Uh oh.

Now, while George can buy an RV in a no-tax state, George has to give an address somewhere. And that state will start thinking you're a resident of that state. And if that state has no sales and use tax, they'll probably have other taxes that may be even worse, long term. If not income tax, think property taxes.

But, let's say George actually gets his mail at his brother's house in Jimigan (another fictitious state). George better not EVER visit his brother, even for Christmas. If George attracts the attention of the local constabulary, they will wonder why the registration on the RV doesn't match George's driver's license which says he lives in Jimigan. They will probably make George plate the vehicle in Jimigan, and then, of course, pay the use tax. And possibly a penalty, with interest.

BUT WAIT, THERE MORE! Nomadia still things George lives there because that's where he registered the vehicle. So, George may wind up paying Nomadia taxes, Jimigan taxes AND the Jimigan use tax on the RV. George is going to wind up paying more to get a CPA to sort this out then the taxes he saved on the RV.

Dodge one loophole and there's often a noose waiting for you on the other side.

What actual states do is worthy of some professional research. But what I've given you is a logical discussion of what I see are the problems.

I tell my seminar participants this all the time: most states have found most of the loopholes since the first sales tax law was passed in 1930. For something like an RV, I'm guessing they will have figured this one out.

Sales Tax Guy
See disclaimer

3 comments:

Roy said...

Alaska has no sales or income tax, but driving an rv all the way up there is a bit of a chore. Very interesting drive though.

Anonymous said...

Montana has no sales tax. When you set up an LLC here the Montana Dept of Revenue looks for you to file taxes. If you submit an "Affidavit of Corporate Inactivity" affirming that your LLC has made less than $400 in profit then the Revenue Department stops asking you to file taxes.

If you register a vehicle under your Montana LLC you carry with you your articles of organization stating that the LLC is in good standing with the Montana Secretary of state and you personally are the owner of the LLC. If you are stopped you produce the articles showing that you are driving a company car and you own the company.

my email is linda.montana@mail.com

Linda

Anonymous said...

Linda,

Thanks for the insight.

I tried to e-mail you, but your address is no longer valid.

Winston