No, You Shouldn’t Incorporate And Register Your Car Tax-Free In Montana

montanaCar ownership is fun and convenient, but paying sales tax, use tax, or personal property tax on your car is expensive and annoying. What if you could avoid that, and avoid annual car inspections, just by filling out a little bit of paperwork? That’s the premise of companies that offer to help you incorporate in Montana, have your corporation own the vehicle, and pay no taxes.

If you’re an actual resident of the state of Montana, this post doesn’t apply to you. As a resident of that state, you’re supposed to register your vehicle there. It’s the rest of us, who have the misfortune to live in places that aren’t Montana, who might find this scheme tempting. The problem, Michigan lemon law attorney Steve Lehto explains: the state where you actually live can always catch up with you.

Here’s how it works: you pay a few hundred bucks to a law firm in Montana to register a limited liability corporation. Your LLC then purchases the car as your “company car.” Your corporation doesn’t exist for any reason other than to own your car, and you only owe Montana registration fees and a payment to the lawyers to keep your corporation registered.

If this worked, wouldn’t everyone register their car in Montana? This scheme doesn’t really pay off if you’re buying a used 2004 Camry, but it’s tempting if you want to buy a six-figure supercar. (Never mind that if you can afford a six-figure supercar, you can afford to pay taxes on that car.)

Lehto points out in a blog post for Jalopnik that there are two problems with this: first, you can probably get away with the scheme for a while, but do you really want to risk tax penalties over this? Second, your insurance company will probably not be thrilled with your registration scheme, which will cause problems when you get in an accident, and the insurance company denies your claim when they notice that the car is registered to a Montana LLC.

In summary: try being honest and paying the taxes you owe. You generally can’t go wrong by doing that.

The Pitfalls Of The Montana License Plate Scam [The Garage]