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Under a Big Sky, They Turn RVs Into Dodges

Some motor home owners find refuge from California's sales tax behind Montana plates.

September 25, 2006|Evan Halper | Times Staff Writer

MISSOULA, Mont. — In addition to its wide-open skies, roaming grizzlies and world-class fly fishing, Montana has another lure for Californians: the prospect of a tax dodge.

Much to the displeasure of California law enforcement officials, Montana has become a haven for motor home owners who prefer not to pay the Golden State's sales tax when they buy their costly coaches. Montana has no sales tax, and recreational-vehicle aficionados are taking a break from their road maps and AAA Trip-Tiks to set up shell corporations in the state.

Doing so allows them to take advantage of loose registration laws -- without having to set foot in Montana -- and shave perhaps $20,000 off the cost of a luxury motor home. Enough Californians are doing it to support a cottage industry in Missoula, where a dozen or so people make a living creating tax avoidance plans for RV owners.

Officials at the California attorney general's office say they believe as many as 10,000 Californians have put Montana plates on their motor homes over the last few years, most of them illegally. They base their estimate on comparisons of Montana vehicle records with California addresses.

"We estimate that California has lost over $160 million to this particular type of fraud," said Deputy Attorney General Robert Morgester.

And a new law signed by Gov. Arnold Schwarzenegger on Wednesday, Morgester said, may make it harder to catch the cheaters.

Most states make it difficult for nonresidents to get license plates. But Montana lets out-of-staters register vehicles if they own a local limited liability corporation. Setting one up merely requires some simple paperwork and about $1,300 to cover incorporation costs, registration fees and attorney hours.

In the riverside university town of Missoula, lawyer John Bennett is a pioneer in the field of helping Californians avoid their home state's sales tax -- as high as 8.75%, depending on where the buyer lives. A gregarious Montana native who often brings his Shetland sheepdog to a storefront office on Main Street, he is the nemesis of the California Highway Patrol.

"Every time we get one of these Montana RVs, he was always the one who set it up," said CHP Officer David Constantini, who runs the California government's CHEATERS website. The acronym stands for Californians Help Eliminate All The Evasive Registration Scofflaws. Anyone can use the site to report people they believe are driving any vehicle in California illegally.

Since its launch in April 2004, the site has received 136,000 tips -- an average of more than 100 a day -- and brought in $1 million in back sales taxes and registration fees from scofflaws, including RV owners. A handful of senior citizen volunteers in Constantini's office tracked them down.

One of the RV owners they nailed is Frank Graves, a truck driver and Bennett client who boasted to a Montana newspaper that he saved $16,000 by not paying California taxes. The money helped cover the cost of a new coach with floor heating, a satellite TV system and motorized expandable rooms, he told the Missoulian.

California law would have allowed Graves to skirt the tax bill if he had kept the motor home out of state for a year.

But he quickly brought it to California, where he was nabbed by a CHP officer who saw the newspaper article and tracked him down. Bennett said Graves was traveling and unavailable for comment.

State officials say they believe most Californians registering in Montana are doing the same thing Graves did: taking their coaches home right away. Bennett says Graves was atypical, and that almost all of his clients follow his instructions to keep the vehicles out until it is legal to bring them in.

"California is taking the position that what I am doing is somehow shady or illegal," said Bennett. "It is not."

Bennett acknowledges that the Montana Legislature did not intentionally create the loophole that helps his clients. But as long as it's there, he says, he and others will continue to exploit it.

Not everyone in Montana is happy about that. Dean Roberts, head of the state's Motor Vehicles Department, has urged legislators there to update the law.

"It is an ethical issue for us," he said. "We have an obligation to help other states enforce their tax laws just as we would expect them to help us."

Roberts said Montana has gotten little out of selling plates to thousands of nonresidents beyond about $5 million in registration fees -- a tiny fraction of what the practice is costing California.

But an attempt in 2001 by then-state Rep. Trudy Schmidt to close the loophole in Montana law died in committee after Bennett and some large RV dealerships organized a lobbying campaign against Schmidt's measure.

Buyers order the vehicles from their local dealers in California, or directly from Montana dealers. The plates come from Montana by mail. The new owners must take delivery of their motor homes outside California.

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