Is a Montana LLC Right for You?
A newly retired couple, let’s call them David and Dianne, did their homework before becoming full-time RVers. In a deliberate break with their home state of California, they sold their property and bought an RV. Using a Montana law firm, they created a limited liability corporation (LLC) in Montana for one purpose: to “house” their RV so they wouldn’t have to pay sales tax.
Setting Up Your Domicile In Texas
The couple read that if you claim Texas as your domicile, you won’t have to pay income tax. So, they headed for Texas, driving the RV and towing their Jeep. After arriving in Livingston, they visited Escapees RV Club national headquarters where they obtained their new Texas address. With that address, proof of vehicle insurance and an inspection of the towed Jeep, they headed to the county tax assessor-collector to register their vehicles. When asked by the office clerk if their Jeep was their only vehicle, they answered, “yes,” because technically the RV belonged to the Montana LLC. They received their Texas license plate for the Jeep.
Next, they visited the local Department of Public Safety (DPS) office. They brought along their Texas vehicle registration, proof of insurance, their unexpired California driver licenses and other proof of required identification. Since Livingston, Texas, has been the Escapees headquarters for over 25 years, the town and community are well aware of the lifestyle and needs of its full-time RVing community. Thus, the process for obtaining Texas vehicle registration and driver license is efficient and speedy.
The local DPS promptly presented David and Dianne with their new Texas driver licenses (paper copies to use until the laminated plastic copies arrive by mail). David and Dianne had completed the process in less than one day. They left Livingston, Texas, in their Montana-licensed RV, towing their Texas-licensed Jeep. They were free to travel whenever they wanted and wherever they wanted, without worry. Or, so they thought!
Managing a Montana LLC
As Dianne drove through Washington State, she didn’t realize she was in a speed zone. The next thing she knew, she was being pulled over by a local DPS trooper. He noticed the Montana license plate on the RV and the Texas plate on the Jeep. He asked to see Dianne’s driver license and noted it was also Texas. The trooper didn’t stop there. He contacted the Texas Secretary of State’s office to check on the discrepancy, and he was told that the couple was most likely guilty of tax fraud and tax evasion. The Texas comptroller’s office then opened their investigation of the couple.
That’s when our law firm received the call from the frantic couple. They were being accused of a felony, potentially punishable with six months to two years in prison. In their defense, the couple had to swear that they had not been in Texas for more than 30 days during the past year. As one Montana lawyer in the LLC-creating business explained (in response to questions about the validity of the Montana plates where the owners are Texas domiciled): “The best approach for a Texas resident operating a vehicle owned by a Montana LLC is to limit his/her time in Texas.”
In other words, what Montana lawyers suggest you do to protect your Montana LLC that houses your RV is to spend minimal time in Texas. However, by not spending time in Texas, the place you are claiming as your home, you will undermine your claim that you are domiciled in Texas. As a lawyer advising people about establishing domicile in Texas, I can guarantee that the best way to disprove your claim of Texas domicile is to spend too little time in the state.
The Ten Commandments of Domicile
As a word of caution about domicile, if you intend to make Texas your home (which is the legal definition of domicile), you should truly “make Texas your home” by going above and beyond the process of selling your home in California and registering your vehicle and obtaining your driver license in Texas. In fact, since you plan to travel extensively throughout the country, to firmly establish Texas as your home, you need to follow what I call the Ten Commandments of Domicile (in this order):
- Obtain your Texas address;
- Register your vehicles in Texas;
- Obtain your Texas driver licenses;
- Register to vote;
- File an Affidavit o f Domicile with the court;
- Establish community relations i n Texas;
- Change to local businesses for banking, accountants, doctors and dentists;
- Have your estate planning documents (wills, trusts an d powers o f attorney) written i n Texas;
- Keep stored belongings in Texas;
- If you still have real estate outside o f Texas, rent the real estate o r otherwise sho w that you aren’t using it as your “hub.”
The reason the Washington DPS officer suspected a problem was because of the discrepancy between Texas plates, Texas driver licenses and that Montana plate on the RV. Consistency between these items, license plates and driver license, is the best way to proceed. Realistically speaking, if you intend to claim domicile in Texas, then bite the bullet and pay the Texas sales tax for your RV. Then, all your vehicles will have Texas license plates. Your driver license will be Texas and, if you are pulled over for speeding in Washington State, you won’t face felony charges for tax evasion.
As an aside, it is important to remember that paying Texas sales tax helps to fund the local Livingston, Texas, community, a low-income, rural area, 70 miles northeast of Houston. The taxes also provide funds necessary to keep Texas roads in good repair. After Hurricane Harvey, there’s even a greater need for assistance in this regard.
So, if you truly want to leave your cares behind when you choose the full-time RV lifestyle, I recommend staying informed and remain certain that you are following the proper procedures to avoid future legal problems. Adhering to the advice of legal counsel will provide you with peace of mind and worry-free RV travels.
Author
K. Susie Adams SKP #134068
K. Susie Adams has been a lawyer for over 30 years, spending 15 of those years working as a trial lawyer. She also taught legal writing at the University of Houston Law School. From 2011–2016, she was executive director of Childrenz Haven, the Child Advocacy Center of Polk County, Texas. Susie and her husband, James Frost, reside in Livingston, Texas.
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To add to your article and I feel correct decision…1) when any of the LLC creating law firms are asked for an opinion of its legality they make none and send you a copy of your present state law re who is required to have plates in that state 2) as an insurance agent for many years I also have serious issues of using a “personal Auto Policy” to cover a vehicle that is a commercial enterprise. The personal auto specifically excludes coverage for commercial activities/ventures. If a commercial policy is used it does not provide the broader coverage of a personal policy..
Enjoyed your article…
We have been full time RV for 2+ years. Domiciled in South Dakota.
We sold everything in Iowa where we had lived for almost 20 years.
Our wills were last done in 2017 as I prepared to retire.
Nothing has changed but reading your blog makes me wonder if it would be best to redo our wills in SD. If so it would be boilerplate with no changes. Seems like unnecessary cost at an attorney.
We are sure to be in SD at least once a yes or more often-we have family on both sides.
Have registered to vote etc.
Since we have no real property anywhere I am not convinced it needs to be done.
Full time means the end could come for either/both of us anywhere other than SD.
Your counsel would be appreciated!
Phil & Evy Somsen
SKP #131800
Hi there!
With specific questions like yours, we recommend you reach out to legal counsel directly so all factors can be considered in the discussion. Loring & Associates (who Mrs. Adams works with) typically offer a free consultation, which sounds like it would be helpful in your case. http://www.loringlaw.com/
I get a kick out of people who want all of the perks their taxes pay for but don’t want to pay any taxes
Great insight and good advice.
Great article! We looked at doing a Montana LLC ,but it seemed a bit risky so we opted to ‘bite the bullet’ and pay Colorado sales tax when we purchased our RV. Changing domicile to Florida using Escapees was simple when the time came to become fulltimers.
Thank you for sharing very informative article. I recently bought used RV from Texas on November 6th. Drove it to Ca where we live. But we rent both of our houses. 1house has been rented for 4years the house we currently live in will be renting in 10days. We already have contract to rent. We want to be fulltime RVing. Planning to use Montana state to register our RV
LLC. What is the requirement and legal. We also own 2 cars still register CA and I have CA driver license.
I found this article very close to my case… but I would like to make sure if we are going to be legally with our LLC Montana RV register and still have 2 cars CA register.
Thank you for our RVing community and this forum.
Ngoc , I’m certain that if a Cal State Trooper were to pull you over and find you had a Cal driver-license, a toad-car licensed in Cal and a motor-home with Montana plates it would not go well….
To avoid that one guy I know never brings his Montana LLC licensed MH into Cal, -ever-. It’s parked in Oregon.
I found this line of thoughts, decided that our daughter should read it and save it…. the whole thing, for reference. This covid 19 situation has really put folks around here in a situation. Not knowing where to park the RV, our daughter is now parked in a friend’s driveway, just waiting for the lifting of the law saying she must stay there Until she leaves the state where she is parked. Good thing she has friends…
I travel with a motor coach and jeep both owned and registered by the same Montana LLC, my drivers license is from a state other than Montana, I have a rental agreement from the Montana LLC for the motor home and the jeep.
I never say the I HAVE A MOTOR HOME REGISTERED IN A LLC etc…..wake up people, the LLC is a separate legal entity just as you ALL CAPITAL NAME is LOL.
Hi Steve. Thank you for sharing your thoughts. Since you have a rental agreement with the MT LLC, do you need to file a tax return for the LLC. Thanks for any comments.
The IRS treats one-member LLCs as sole proprietorships for tax purposes. This means that the LLC itself does not pay taxes and does not have to file a return with the IRS. As the sole owner of your LLC, you must report all profits (or losses) of the LLC on Schedule C and submit it with your 1040 tax return.
I would venture that the rental income and the costs incurred by the LLC to maintain, store, license etc the RV would not generate a profit that would create a tax liability.
Taxing a car multiple times is the same as stealing. Pay sales tax when car is purchased. if that was a used car the sales tax in theory was paid on it when titled for the first time. I digress, pay the sales tax and then they want property tax on an already taxed item every year. Um no thanks. Giving more money to already inefficient people doesnt make them (government) suddenly more efficient. And to the one comment about taking advantage of “perks” but not wanting to pay…. I pay income tax to the state and federal government. The purpose of having attractive tax laws from one state to another is to lure people and businesses to that state. Its not an illegal act or a scam. Taxation in this country is out of control, and people are fed up with it.
A lot of this article is from the twilight zone. If you live in Texas and setup a Montana LLC for the express purpose of not paying sales tax, you will be fine as long as you stay out of Texas with the LLC titled vehicle. If you purchase within Texas, in order not to have to pay sales tax, you have to sign a Tax Exemption Certificate that basically says you will remove the vehicle from the state and not bring it back. And if you do bring it back, you understand that you will be liable for the tax (at this point labeled as “use tax” but is the same amount). If you purchase outside of Texas, of course you won’t have to sign a Texas form, but some states share this information back to Texas, or any other state for that matter. Regardless, the law is the same, if you bring it back to Texas, you will need to pay use/sales tax. Other wise, Texas doesn’t care. So, in the story above where Dianne is traveling in Washington…that’s exactly what she’s supposed to do…stay out of Texas. She owns the LLC and the toad, so if she’s properly insured, the only issue is her speeding. The State Trooper can call Elvis if he’ll answer the phone, but it won’t matter. She’s not doing anything wrong. Avoiding sales tax by using a Montana LLC is not illegal nor a scam. But to stay in line with the rules to keep from having to pay the tax can be challenging, depending on how you use your RV (boat, airplane, etc), and depending on your state can be so restrictive as to make it not worth it. It certainly isn’t for everyone. I would suspect most people who do this fudge here and there when it comes to their home state. How much actual risk there is involved with that…who knows.