Some drivers cheat state out of big money

KUSA - Colorado is losing hundreds of thousands of dollars every year from drivers who illegally register their cars, boats, trucks and motor homes out of state, according to a 9Wants to Know investigation.

The practice is against the law in Colorado, but legal in states like Montana where the vehicles are being registered. Montana is one of five states in the nation that has no sales tax and has low registration fees.

"I think there should be a way to catch them and hang them," said driver Jim Hartshorn, who licensed all of his vehicles in Colorado. "When they go out of state, they're cheating everybody else."

9NEWS found the practice is widespread among people who buy motor homes or recreational vehicles because they can save a lot of money. Sales tax and registration fees on an averaged-priced $150,000 motor home would cost $13,800 in Colorado. However, it would only cost $283 in Montana.

The bigger the motor home means the bigger the savings.

"These aren't just state taxes they're avoiding, they're avoiding local taxes as well," said Roxy Huber, Executive Director of Colorado's Department of Revenue. "If they're registering it out of state solely to avoid taxes, they are in violation of the law."

Huber says people can be charged with misdemeanors for non-registration and evasion of taxes, which means they would have to pay Colorado registration and sales tax fees plus fines. The state has charged five people since 1994.

To get around Colorado's tax laws, the drivers exploit a loophole in Montana law that lets them form a Limited Liability Corporation or an LLC. The LLC then buys and registers the vehicles in Montana, using the address of a Montana attorney or a registered agent. The Montana agent then mails the license plates and registration to the owners in Colorado, who never have to set foot in Montana.

"It's a loophole that people drive motor homes through," said Rick Joos, salesman at Bretz RV, the largest dealership in Montana.

Joos says almost one-third of their business comes from out of state purchasers, most of whom form LLC's. Joos says the dealership isn't concerned if the buyers are breaking the law in their own state since it is legal in Montana.

"I would say to Colorado that until something changes, people are going to continue to try and save money on their taxes," said Joos.

Jerry Trager from Allens Park is just one of many Coloradans who have licensed his vehicles in Montana. He registered his 2004 Country Coach and his minivan in Missoula under the LLC 'Pride of the USA'. Trager said that saved him $12,000.

"When you buy these things, there's a lot of sales tax involved and Montana kind of promotes that," said Trager.

After Larry & Carol Heinze in Greeley bought their RV last year, they licensed it in Montana to save about $15,000.

"It's outrageous what they're charging people in Colorado," said Larry Heinze. He said he would register his motor home in Colorado if it didn't cost so much.

Jean Dempster of Highlands Ranch registered her RV in Montana under the LLC 'Dempster Holding' because it would have cost her about $15,000 in Colorado.

"There's lots and lots of people we see in Breckenridge every year who do this," Jean Dempster told 9NEWS. "They're all good people, they're not criminals and they're not dodging taxes."

Shelly Shipp of Jefferson County says she heard about the scheme from a dealership. 9NEWS also found two dealerships in Colorado that offer to help customers skirt Colorado law.

"Personally, I don't think it's a big deal to license it somewhere else," said salesman Jim O'Dell at Century RV in Longmont. "Or if you have friends, like part of the family, a brother, a sister, relative, put it in their name."

At Valley Camper RV in Longmont, Service Tech Terry Carney said the financiers and salesmen will help buyers register their vehicles in Montana.

"When you're talking this kind of money, big money, if you license it someplace else there's taxes you won't pay in Colorado," said Carney.

How much money exactly does Colorado lose every year from the illegal registrations? 9NEWS added up the fees that just nine motor homes would have paid Colorado had they not been registered in Montana. The total was $227,400 for just nine motor homes. Experts estimate Colorado is easily losing hundreds of thousands of dollars each year. Montana has twice the number of registered motor homes than Colorado even though Colorado has 3.5 times more people, according to Tom Walworth of the market research firm Statistical Surveys Inc.

Motor home dealers, lawyers and registered agents advertise the tax savings to Coloradans in magazines and on the Internet.

"It frustrates me that they take advantage of our residents, leading them to believe that what they're doing is OK here just because it's OK there," said Huber. "We try to educate the public and it's frustrating when they've been misled."

Huber says officials in Colorado contacted Montana and Oregon about the problem in 2000. Montana State Senator Trudi Schmidt introduced a bill in 2001 to stop the practice because she hoped another state would do that for Montana. The bill was defeated by lobbyists.

"I knew it was dead before it even had a good discussion," said Schmidt.

She says lobbyists killed the bill because they wanted Montana to keep collecting the tax money. Montana takes in $7 million a year from out of state registrations, according to Dean Roberts, administrator for Montana's Dept. of Motor Vehicles.

"It's disgusting that they're doing this," said Schmidt about the Coloradans and others who register in Montana and don't pay their own state taxes. "These are the same people who probably live on top of a mountain and if there were a forest fire, they'd be demanding protection. In order to have services, you have to pay taxes."

The head of Montana's Dept. of Motor Vehicles wanted the law changed too.

"For my colleagues in the other 49 states, I feel somewhat bad about the practice," said Roberts. "But in fact, Montana has said it's legal and I can't change that."

Roberts says out of state registrations are increasing. They have jumped 75 percent since 1999. "I think as more people find out about it, they're using, no pun intended, this vehicle to get cheap registrations," said Roberts.

Lawyers, motor home dealers and registered agents are making good money on the loophole in Montana's law, said Roberts. Michael Willing, a registered agent who owns the business Deer Creek LLC said his business is doing great because of out of state vehicle registrations. He charges drivers a flat rate of $1000 to register all of their vehicles under an LLC.

"It's supporting people economically in Montana and I think that's a real good thing," said Willing. "If we can find ways to bring money and revenue into this state and it's not impacting us in a negative way, people really support that here."

Few think Montana's law will ever change. That leaves Colorado on its own to fight big advertisers and word of mouth about the big tax savings. The tax evaders are hard to find because they form shell companies in Montana. They can be totally anonymous on the LLC forms and list addresses belonging to Montana attorneys or registered agents. Even Montana's DMV Administrator doesn't know who the real owners are or where they're from.

In 2000, Colorado had a tip line that encouraged people to report illegal plates. But today, the state doesn't have the staff or resources to tackle the problem, which could be why it's so widespread in Colorado, according to Huber. No one has been charged for the crime since 2002, according to DOR records. Still, Huber hopes people who see this story will call (303) 205-8262.

Other states have dedicated resources to recoup some of the $14 million that is lost nationwide each year when people register in Montana instead of their own states. California has a cheaters' tipline which brings in $75,000 a year in unpaid registration fees.

Oregon fined Guaranty RV Center in Junction City $3.3 million in restitution and penalties in 2000 for providing 86 buyers from other states with addresses to register in Oregon. Oregon will also help other states investigate fraud, said David Hause, spokesperson for Oregon's DMV.

"As long as there are tax differences between the states like this, there will be people who try to take advantage of the situation," said Hause.

Michigan carefully audits dealerships and goes after residents who register out of state, according to Tom Walworth of Stastical Surveys Inc.

"In Michigan, they will find who did it and that person will pay the tax and a big penalty," said Walworth.

Washington has collected $10 million from drivers who tried to avoid paying Washington sales taxes. Washington has a team of auditors dedicated to pursuing companies that have been created for the sole purpose of avoiding sales taxes.

Massachusetts and Arizona also have tip lines for people to report violators. Arizona's tip line received 4200 calls in 2002.