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Editorial 6 MIN READ

Montana in December 2016: the state with no sales tax and the Ferraris to prove it

A $70 filing fee, a $20 annual report, and a vehicle-registration niche that accounts for most of the out-of-state interest

The Editors
Staff, Incorporator.org
6 min read Updated
Contents 6 sections
  1. The mechanics
  2. Maintenance, and the April 15 trap
  3. The registered-agent market
  4. The vehicle-registration niche, honestly
  5. Who this state actually makes sense for
  6. Sources

Montana LLC costs $70 to form and $20 a year to keep if you file on time. Most out-of-state interest in forming one, however, has nothing to do with running a business in Montana. It has to do with a $400,000 motorhome and the fact that Montana is one of five states with no general sales tax.

This guide is for two very different readers: someone who actually lives in Montana and is forming an operating company, and someone who has been told by a forum thread that registering a Lamborghini through a Montana LLC will save them the sales tax in their home state. The answers diverge sharply.

The mechanics

You file Articles of Organization with the Secretary of State under the Montana Limited Liability Company Act, codified at Title 35, Chapter 8 of the Montana Code Annotated. Section 35-8-202 lists the required contents: the name of the LLC (subject to the naming rules at 35-8-103), the address of its principal office, the name and street address of its registered agent in Montana, whether the LLC is manager-managed or member-managed, and the names and addresses of the initial managers or members. If the entity is a professional LLC or a series LLC, that gets disclosed too.

The filing fee is $70 for Articles of Organization. The state also sells a priority tier: $20 for 24-hour handling and $100 for one-hour expedite, the latter of which is what Montana's own counsel reaches for when a transaction is closing that afternoon. Filings can be submitted by mail to the PO Box in Helena or in person at the Capitol. The Secretary of State has a fillable PDF on sosmt.gov that most domestic filers use without consulting a lawyer.

You will need an EIN from the IRS, which arrives online in the time it takes to fill out Form SS-4. You will need an operating agreement, which Montana does not require you to file but which the Act assumes exists whenever it resolves a governance dispute. And you will need to pick a federal tax classification: the default is disregarded entity for single-member LLCs and partnership for multi-member LLCs. An S-corp election under IRC § 1362 is available via Form 2553 if payroll math makes sense.

Maintenance, and the April 15 trap

Montana's annual report is due April 15 every year, on the same calendar day as the federal individual return, which is either convenient or the reason it gets missed. The fee is $20 if filed on or before April 15 and $35 if filed after. There is no proration and no honeymoon in the year of formation; if you form in November 2016, your first annual report is still due April 15, 2017.

Miss the deadline badly enough and Montana administratively dissolves the LLC. Reinstatement requires a $35 filing fee plus $35 per year of delinquent reports, and, while the entity exists in a suspended state, the limited-liability shield is the kind of thing plaintiffs' counsel start asking questions about. The cheap, boring discipline of filing in March every year is worth more than it looks.

Montana has no franchise tax, no capital-stock tax, and no general sales tax. It does have a state individual income tax, which is where the pass-through math lives. For tax year 2016, Montana taxes individual income on a graduated schedule from 1% on the first $2,900 of taxable income up to 6.9% on income over $17,400 (that is, nearly the whole return for any reader forming an LLC). There is a 2% capital-gains credit that softens the blow on investment income. A single-member LLC's profit lands on the member's Montana Form 2 at these rates; a multi-member LLC files Form PR-1 and issues Montana Schedule K-1s to the members.

The registered-agent market

Every Montana LLC needs a registered agent with a physical Montana street address (no PO boxes). The commercial market is thinner than Delaware's, partly because Montana has one-sixtieth of Delaware's entity rolls, and partly because much of the out-of-state demand is concentrated in a handful of specialist firms in Kalispell, Missoula, and Deer Lodge that advertise explicitly to the vehicle-registration market. Prices run from the low tens of dollars a year at the commodity end to several hundred at the full-service end. For an operating company, the analysis is the same one we give for any state: pay enough to get someone who will actually catch service of process.

The vehicle-registration niche, honestly

Here is the thing most of the country has heard about Montana LLCs and wants to ask about.

Montana does not levy a general sales tax. Montana also allows a Montana-domiciled LLC to register a vehicle in Montana even if the beneficial owner of that LLC lives somewhere else. On a $400,000 motorhome bought by a California resident, that is the difference between roughly $30,000 of sales tax at the dealer and zero. On a $250,000 exotic car, it is comparable. The arithmetic is why a certain kind of RV dealer in Oregon and a certain kind of supercar broker in Florida will happily refer buyers to a Montana registered-agent firm that forms the LLC, registers the vehicle, and issues a plate by mail.

The mechanics work because Montana's own rules permit them. The problem is that the buyer still lives in California, or Massachusetts, or Washington, and those states' use-tax statutes are not forgiving. Use tax is owed on a vehicle brought into the state for use there regardless of where it was titled; criminal exposure is real where the state can show the buyer structured the transaction to evade tax. California's Department of Tax and Fee Administration, the Washington DOR, and several state attorneys general have all published warnings and pursued collections on these structures over the past several years. The headline savings are real. The tail risk is too.

If you are a Montana resident who owns a motorhome, register it in Montana because you live in Montana. If you are a non-resident who owns a motorhome that you genuinely keep in Montana — a ranch, a second home, a seasonal base — the LLC structure can be defensible. If you are a non-resident whose vehicle lives in your driveway 2,000 miles from Helena, what you are doing has a name, and it is not tax planning.

Who this state actually makes sense for

Three kinds of filers belong in Montana at the end of 2016.

The first is anyone operating a business in Montana. The Act is a modern RULLCA-descended statute with series-LLC provisions; the filing fee is cheap; the annual report is the cheapest in the mountain west; and state income tax on pass-through profit is the only material drag, which you would owe as a sole proprietor anyway. For local operators there is no reason to form elsewhere.

The second is the non-resident who genuinely bases an expensive vehicle or an aircraft in Montana and wants the sales-tax treatment that goes with Montana domicile. Defensibility is a matter of facts — where the asset sleeps, where it is insured, where it is used — not of paperwork.

The third does not exist. Montana is not a general-purpose cheap formation alternative to Delaware or Wyoming. It has no privacy advantage over Wyoming (member names are in the Articles), no court-of-chancery advantage over Delaware, and its tax profile is mixed once you look past the sales tax. If you are reading this because somebody told you Montana was the new Wyoming, it isn't.

The state with no sales tax is, in the end, a state. Its LLC is a good one if you live there. If you don't, file at home and leave Montana to the ranchers and the people with actual motorhomes.

Sources

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