CEDAR RAPIDS — Owning a recreational vehicle is getting more expensive for some Iowans.
It’s not that the price to buy a motorized mansion is going up, but that the state is getting tougher on collecting registration fees.
Already, the state has recovered about $1 million in unpaid tax and registration fees and a law change that went into effect July 1 is expected to channel more revenue into the underfunded state Road Use Tax Fund.
“It’s well worth our time and effort,” Major Paul Steier of the Iowa Department of Transportation motor vehicle enforcement unit, said.
The DOT and Iowa Department of Revenue are going after Iowans who have established limited liability corporations in Montana to register their RVs there to avoid paying the 5 percent Iowa registration fee on vehicles and annual registration fees.
Montana does not charge sales tax, so it’s become the Cayman Islands of recreational vehicles for people from all over the country who want to avoid paying their home state’s sales tax on the purchase of expensive motor homes.
“That 5 percent adds up when you’re talking a $100,000 RV,” Steier said.
That’s $5,000 on a $100,000 RV or, as the bill’s author Sen. Tod Bowman, D-Maquoketa, likes to say, it’s $50,000 on a $1 million RV.
However, that’s a fraction of the penalty if an RV owner is caught registering the motor home in Montana to avoid the Iowa fees. Steier said the Department of Revenue can slap them with a penalty equal to 75 percent of the purchase price.
John Barnes at the Montana Department of Justice doesn’t know how many Iowa vehicles are registered there because all the information he sees shows Montana addresses. Although Iowa may consider it illegal to register RVs there, Montana considers “it is lawful to establish an LLC for the sole purpose of titling and registering vehicles here.”
However, there are barriers to Iowans setting up sham LLCs to avoid registration fees, said Jeff Engelbart, co-owners and vice president of Lasso E RV Sales at Anamosa.
“I don’t have customers who do that,” Engelbart said.” I talk to them about the ramifications of licensing out of state. I just explain that the registration fee is to take care of roads and highways. It’s not like it’s disappearing into the general fund.”
He also explained that if a customer is financing the RV purchase the finance company will want physical address, not a post office box. If the lender runs a credit check, he said, they will see that utility bills, phone bills and other payments are being made from a physical address in Iowa.
Not everyone in Montana thinks the arrangement there is a good idea.
“This is upsetting the laws of the other states. We don’t like the practice,” Dean Roberts, former administrator for Montana’s motor vehicle division, said. “I don’t like it from an ethics point of view.”
States cracking down
Iowa is not alone in cracking down on RV fee avoidance. The National Conference of State Legislatures reports California and Massachusetts have passed legislation to prevent citizens from taking advantage of Montana’s vehicle registration laws.
Since the mid-2000s, Iowa investigators have been working on their own as well as with colleagues from other states to catch folks trying to avoid the registrations fees, Steier said.
Sometimes it’s as easy as walking around the parking lot at a college football game to check on RVs with Montana license plates. Sometimes it is more difficult.
“It’s a little challenging because people are coy about trying to conceal their true identity,” Steier said.
Once investigators uncover the owner’s true address and build a case, the information is forwarded to the Department of Revenue to collect the fees and penalties.
Steier agrees with Engelbart that most Iowans want to do the right thing. He also noted that toward the end of June — just before the new law went into effect, county treasurers reported RV owners coming in to ask about the change and how to be in compliance.
“Word has gotten out,” Steier said. “Hopefully, as time goes on, (we’ll) see fewer of those Montana plates.”