Montana LLC's, a Heads Up

[JimM68]

As Gary asked, what is the basis of NY coming back to him?

Since the RV was purchased by a Montana Corporation from a dealer not in New York, what possible claim could they think they have?

And what "documentation" ar you talking about?

And what could New York possibly do against an individual resident who doesn't even own the motorhome?

I would simply go to court and say "wut u talkin about?"

[wnytaxman]

Let me see if I can address all the issues. First off, a lot of times clients pull the old west gambit of shooting first and asking questions later. That is exactly what this client did. He went with the Montana LLC without asking me first, so I really couldn't guide him on this transaction. We don't know for sure, but our guess is that NY was tipped off by Florida taxation. Apparently Florida sales tax is auditing all major RV dealers every month. Most states, and I assume Florida is no different, require you to provide a copy of your driver's license when you purchase the vehicle. Florida then notified NY that a NY driver had purchased an RV using a Montana LLC. That level of cooperation between states is not unusual.

As I understand the NY law, the vehicle can not be in NY more than 31 consecutive days without the registration being changed over to NY and then NY getting its sales tax when the registration is changed. Your first thought is that if the rig was purchased out of state there should be no NY sales tax. The problem here is that he was a NY resident when he bought the rig so NY tax would be due at that time. My client claims that he met the requirements of the unit not being here for 31 consecutive days, but he did not save any proof that he met that requirement. We consulted a local tax attorney who is considered to be the authority on NY sales tax and her advice was, "Don't waste your money on legal fees, just pay the tax." He can't prove that he met the requirements so he will very likely have to pay the tax.

I have been a CPA for 36 years and worked in the taxation area for 38 years and I have never seen states and the feds so aggressive in chasing tax dollars. For example, I have not had a "C" corporation audited in over 20 years. I have four C corporation audits going on right now. Even though we prepare over 1300 personal tax returns we usually only have one audited every year or two. I have two personal audits going on right now and my guess is that I will have at least ten before the year is out. On the state level I do not know of any restaurant in Western NY that has over $200,000 in sales that has not had a sales tax audit. ALL of the sales tax audits we have seen have resulted in the state getting some pretty hefty sums.

My point with this thread is that if you use the Montana LLC make darn sure you have all your i's dotted and t's crossed because if they come after you and you haven't covered all the bases it will cost you even though you may be right. Know exactly what your state requires and make sure you can prove it if you have to. Even though you may be right, it may be costly to defend yourself against a state government that sees dollars that it thinks it should get.

[wnytaxman]

Originally Posted by JimM68

As Gary asked, what is the basis of NY coming back to him?

Since the RV was purchased by a Montana Corporation from a dealer not in New York, what possible claim could they think they have?

And what "documentation" ar you talking about?

And what could New York possibly do against an individual resident who doesn't even own the motorhome?

I would simply go to court and say "wut u talkin about?"

Jim, if you go to another state and buy a $5,000 TV and bring it back into your state, you owe the sales tax on it. Most states that have income taxes have the "fess up" line for people to admit they bought something on the internet and that they owe the sales tax on that item.

The claim that NY has is that a NY resident purchased a vehicle through a separate entity strictly to avoid the NY sales tax and then brought that vehicle into NY. Had he switched his residency to Montana or Delaware or Alaska then there would be no issue. Two prime examples of what can go wrong with sales tax are Senator John Kerry from Massachusetts and Koslowski, I believe that was his name, who was the chairman of the board of Tyco Industries. Kerry bought a yacht in Rhode Island and then left it there to avoid his Mass. sales tax. He got caught and agreed to pay the tax but he tried to pull a fast one and got his hands slapped.

Koslowski, as I remember the story, bought about $14 million of art work in NY City and told the dealer to ship the empty boxes to his office in New Hampshire, but he would take the art with him. He was tried and convicted of criminal tax fraud. I think he actually did prison time.

[JimM68]

While I do appreciate your bringing this up...
And I also understand that the tax man makes up the law at will, and it is then up to us to defend...

You state: "The problem here is that he was a NY resident when he bought the rig so NY tax would be due at that time."

The individual who is a New york resident did not buy a motorhome. A legal montana corporation did.

You further state: "the vehicle can not be in NY more than 31 consecutive days without the registration being changed over to NY and then NY getting its sales tax when the registration is changed."

This statement makes no sense at all. If I move to new york, I don't owe them sales tax on vehicles I all ready own.
If a corporation has a large numbers of company cars, purchased or leased in quantity at the home office, they don't pay new york sales tax.
If that corporation transfers title and plates to New York in compliance with the law, NO SALE TOOK PLACE, so no tax would be due...

In the case you bring up, it appears to me the screwup was that the Montana LLC should have transfered title and plates to New York within 31 days to comply with the law.

Regardless, your client, an individual who is a resident of New York, is not involved in this.
The Montana LLC, the legal owner of the motorhome, I suppose could be brought to task by the state of New York for violation of it's vehiclew licensing laws, but that has nothing to do with sales tax.

I'm really not coming down on you personally...

Just trying to make some sense of this. I'm really not willing to accept that the tax man can make up the laws as it goes, and only those who are willing to feed lawyers vast sums of money to defend themselves can call them on it.

A Montana LLC is not an individual. Not a resident of New York or any other state other than Montana. And "INTENT" means nothing here. The letter of the law is the letter of the law.

[JimM68]

Originally Posted by wnytaxman

Jim, if you go to another state and buy a $5,000 TV and bring it back into your state, you owe the sales tax on it. .

WHAT?

If I as an individual purchase a $5000 TV... I will be charged sales tax in the localle where I am purchashinh the TV... And I will pay it. The only way I know of around that is to jump through the required hoops to claim I was purchasing it for resale. Amnd in this case that of course would be fraud.

And once the purchase was made and local tax paid, pretty much all states have reciprocity agreements whereby it would be considered "done."

Sorry, bad example.

[RJay]

Jim,
I'm no tax man but as I recall if you buy a car in one state and pay tax on it and then move to another state, the new state will demand the difference if the tax is higher in the new state when you re register the vehicle.

[wnytaxman]

Actually a Montana LLC for tax purposes is what is called a disregarded entity. What that means is that it may have a legal distinction from the individual, but it does not have a tax distinction. If I use your example of someone moving into NY or any state for that matter. You would not owe sales tax if you are a resident of the state you are moving from. Tax was already paid so no issue. If you use the example of, let's say an Ohio corporation that sets up operations in NY. Its company cars that are based in NY would have to be licensed in NY and depending on the circumstances, sales taxes could be due.

The key issue here Jim is that the owner of the LLC is a NY resident and there is no business purpose behind the Montana LLC. The rig was bought for use by a NY resident. Remember that sales tax is also called use tax. You buy it and you use it, then you will pay the sales tax on it.

[wnytaxman]

Originally Posted by JimM68

WHAT?

If I as an individual purchase a $5000 TV... I will be charged sales tax in the localle where I am purchashinh the TV... And I will pay it. The only way I know of around that is to jump through the required hoops to claim I was purchasing it for resale. Amnd in this case that of course would be fraud.

And once the purchase was made and local tax paid, pretty much all states have reciprocity agreements whereby it would be considered "done."

Sorry, bad example.

How about you bought the TV in New Hampshire where there is no sales tax? Do you think you owe it now? I'll guarantee you that your state thinks you owe it. Or if you bought the TV in Ohio and paid 6% but then took it back to Tennessee where the tax is 9% you could very well owe the difference in the taxes paid.

[BigSkyBob]

So if I moved from Montana, where I live now, and moved to NY I'd owe the state of NY "use" taxes on everything I've ever bought in Montana? Something smells bad here IMHO. I'm talking about cars, trucks, my coach, washer, dryer, socks and underwear? Even my tenny runners? Gimme a break!

[Downsizer]

NYTaxMan..... you are so right!!! States are desperate for $$$$ - any way they can get it! I agree with you 100%..... it just doesn't pay anymore..... too many computers are cooperating between states...... 10 years ago, it would've been a non-issue..... not today.
Besides, who wants to deal with a Tax Collector that has unlimited funds and unlimited TIME to fight you and collect..... no thanks.... if you can afford to buy it, pay the *&%^$& TAX and get it over with!

[JimM68]

Originally Posted by BigSkyBob

So if I moved from Montana, where I live now, and moved to NY I'd owe the state of NY "use" taxes on everything I've ever bought in Montana? Something smells bad here IMHO. I'm talking about cars, trucks, my coach, washer, dryer, socks and underwear? Even my tenny runners? Gimme a break!

I'm with Bob... gimme a break

[wnytaxman]

Originally Posted by BigSkyBob

So if I moved from Montana, where I live now, and moved to NY I'd owe the state of NY "use" taxes on everything I've ever bought in Montana? Something smells bad here IMHO. I'm talking about cars, trucks, my coach, washer, dryer, socks and underwear? Even my tenny runners? Gimme a break!

Apparently you didn't read all of the posts. What I said early on is that if the guy who bought the rig with the Montana LLC had not been a NY resident there would not have been an issue with his purchase. I'm not picking on Montana or anything remotely like that. If someone uses a Montana LLC they may have to justify that they had complied with their home state's laws, assuming they are not residents of Montana. That is the point. If you were a resident of let's say, Michigan, and you were stationed in Montana and while you were stationed there you bought a truck and did not pay sales tax on it and then you moved back to Michigan, then you would owe the sales tax. That is because you were still a legal RESIDENT of Michigan.

[KIX]

Originally Posted by BigSkyBob

So if I moved from Montana, where I live now, and moved to NY I'd owe the state of NY "use" taxes on everything I've ever bought in Montana? No, just the stuff you brought to NY with you. Something smells bad here IMHO. I'm talking about cars, trucks, my coach, washer, dryer, socks and underwear? Even my tenny runners? Gimme a break!

Actually, I really don't know but just couldn't resist the above comment.

But, when you (as a FL resident) buy something on the internet from a source that does not charge you sales tax you are obligated to remit the FL Sales and Use Tax to FL. So gar FL hasn't figured out a way to make folks honest.....yet.

[ScottyP]

Several years ago my wife made a trip to North Carolina and purchased some great furniture for our home. About 2 + years after the furniture had been purchased and delivered to us we got a nice letter from the AZ Dept of Revenue asking for the AZ sales tax we owed from the purchase in North Carolina. To say the state cannot come after you for sales tax on purchases you make out side of your state of residence has just been proven wrong. I got the cancelled check to prove it