LINCOLN — Recreational vehicles with Montana license plates started showing up at Nebraska campgrounds and Husker football tailgate parties about five years ago.
Tax Commissioner Kim Conroy said the Nebraska Department of Revenue also started getting calls from people saying they knew about Nebraska residents who had registered their recreational vehicles in Montana to avoid taxes.
The prevalence of the problem led Revenue Department officials to push for a bill that would close a tax loophole that allows recreational vehicles to be registered in Montana to a limited liability corporation.
Legislative Bill 851, introduced by State Sen. Galen Hadley of Kearney, would give current statutes enough teeth for Nebraska officials to go after the RV owners.
After spending some time on Google, Hadley said, he was shocked at the number of law firms and companies willing to help people create limited liability corporations in other states so they can avoid paying taxes.
By registering RVs in Montana, owners can save thousands of dollars because that state has no sales tax.
The typical state and local sales tax in Nebraska is about 7 percent, Conroy said, so the buyer could save $14,000 on an RV costing $200,000. The owner would also avoid paying about $900 in title and registration fees to the Department of Motor Vehicles.
Local RV dealers said the bill is about five years too late. The practice was more common a few years back, but now banks won't finance purchases through an out-of-state corporation. And few people have the cash to spend thousands of dollars on an RV without financing.
“Used to be almost every motor home had a Montana plate on it, but I haven't seen one in a long time,” said Bob Fielder, general manager at A.C. Nelsen RV World in Omaha.
Establishing a limited liability corporation in Montana for the sole purpose of titling and registering recreational vehicles is legal in Montana, said Anastasia Burton, deputy communications director for the Montana Department of Justice.
She said no precise figures are available on how many Nebraskans have set up such corporations in Montana.
Officials in Nebraska also say they don't know how prevalent the problem is.
“I don't know if we're being proactive or reactive,” Hadley said.
California, Massachusetts and Iowa have passed legislation in the past few years to prevent their residents from taking advantage of Montana's vehicle registration laws, according to the National Conference of State Legislatures.
Last year, Iowa passed a bill to stop people from registering not only their RVs, but also cars, to out-of-state corporations. Iowa officials offered a three-month settlement period, when people could register and title their vehicles in Iowa, and pay the state's 5 percent new registration fee and a penalty.
Within the three-month period, Iowa collected about $600,000 in back taxes, said Victoria Daniels, spokeswoman for the Iowa Department of Revenue. All of the money went into the state's road tax fund.
The bill in Nebraska is aimed at only recreational vehicles, and the estimated revenue is lower. Officials project that Nebraska could collect $94,000 in the 2014-2015 fiscal year with that money going into a fund used for road construction and maintenance.
That number is projected to grow to $127,000 by the 2016-2017 fiscal year.
If the bill is passed, Conroy said, the Department of Revenue will offer people the opportunity to voluntarily comply with the new law.
Under the bill, the Department of Motor Vehicles or Department of Revenue would send notices giving RV owners 30 days to register their vehicles in Nebraska and pay taxes. A resident could appeal, but failing to comply could result in a penalty of up to 50 percent of the unpaid taxes and fees.
“The vast majority of Nebraskans license their RVs properly,” Conroy said. “We're just trying to keep it an even playing field for those Nebraskans that are doing what they need to do and paying their fair share of taxes.”