A new rule for recreational vehicles was inserted in a catch-all bill approved last week by Iowa legislators. Senator Tod Bowman, a Democrat from Maquoketa, says it’s a crackdown on tax evasion.
“What this will do is close the loophole by addressing a sham or a shell fake (limited liability) corporation specifically being in place in the state of Montana,” Bowman says.
“We’re talking about million dollar RVs or luxury vehicles that are being registered out-of-state, but they’re being driven in the state of Iowa, they’re maintaining residence in the state of Iowa, but they’re getting through this loophole and not paying their user fee.”
Montana does not charge sales tax, so people around the country have set up corporations in Montana to avoid paying their home state’s sales tax on the purchase of expensive motor homes. Bowman says some Iowans are using that loophole.
“If you’re talking about a $25,000 vehicle, that might mean $2000, but if you’re talking about a million dollar vehicle, it’s $50,000,” Bowman says.
The proposal that has cleared the legislature makes it a crime for an Iowa resident who does not use their RV to do business for a Montana-based corporation to evade Iowa taxes by registering their motor home in Montana. Bowman says motor homes create wear and tear on the state’s roads just like other vehicles and the state sales taxes paid on motor home purchases help finance road repairs.
“That money goes directly to our Road Use Tax Fund,” Bowman says. “We all know the need in our Road Use Tax Fund.”
Sales taxes on motor vehicles and state taxes charged on motor fuel are deposited in the state Road Use Tax Fund, but officials say the fund is at least $250 million short of covering the amount of repair and construction needed in Iowa’s road system.
Some states have set up tip lines for residents to call in and report on neighbors who have an RV with Montana plates. This motor home sales tax issue was included in a huge bill that cleared the legislature on its final day. Governor Branstad has the authority to item veto sections of the bill and he routinely refuses to say in advance whether he’ll approve or veto proposals.