California closed the Montana license plate loophole
thedrive.com138 points by speckx a day ago
138 points by speckx a day ago
Interesting and somewhat related: Youtuber Cody Detwiler (whistlindiesel) was arrested last year and charged with multiple tax evasion felonies for using the Montana loophole to register his vehicles.
According to Detwiler, Tennessee did not bother to notify him in advance that he was in violation. Instead, they sent heavily armed men to his place of business, handcuffed him, and took him to jail. His bond was $20000.
Detwiler spoke out publicly on his Youtube channel about the arrest, claiming that he was targeted specifically because his celebrity status would bring attention to Tennessee's position on the loophole. Shortly afterward, Detwiler was arrested a second time at the airport while returning from a trip abroad, and charged with a separate Montana loophole violation.
Detwiler says that Tennessee authorities visited his accountant months before he was charged, asked her specific information about his vehicles being registered in Montana, and told her not to let Detwiler know about they were investigating him.
> According to Detwiler, Tennessee did not bother to notify him in advance that he was in violation. Instead, they sent heavily armed men to his place of business, handcuffed him, and took him to jail. His bond was $20000.
Why should white collar crime deserve a lighter touch? This wasn't a no-knock raid in the middle of the night.
Because they’re part of the gentry class white collar, but blue collar crime the police force as we know it today was created to take care of the EastEnders not the Gentry class and the police have been successful in carrying out their remit in that area of law enforcement since the 1840’s/1850’s…
The police are a literal extortion racket in the US. “That’s a nice society you have there, wouldn’t want us to fuck it up would you? No? Better keep paying us then.”
This is the deal at this point.
Did he have a history of violence, or was there some good reason to send armed men to his place? If not, this is just a waste of resources, and also adding many armed men into the situation made it more likely for things to turn deadly.
US law enforcement are always armed by default. It would be shocking if they actually showed up unarmed. Possibly negligent and a firing offense.
Is there no policy of calling someone without a history of violence (or showing up to inform with no intention of on-the-spot arrest) to let them know they are in violation of the law and request they turn themselves in within the next X days if there is no reason to assume evidence could be destroyed by the person during that time?
Why would there ever be a “no reason to assume evidence could be destroyed”?
The evidence of knowingly evading taxes is likely in encrypted text messages and emails that can be trivially destroyed.
> According to Detwiler, Tennessee did not bother to notify him in advance that he was in violation.
Why would they? The people who use these "loopholes" know exactly what they're doing.
Well, by definition, if it's a loophole it isn't illegal. So.. he had no reason to believe it was
I put "loophole" in quotes for a reason.
The person in question was arrested and charged with tax evasion and filing a false sales tax return. What he is alleged to have done is illegal.
The state was under no obligation to alert him to the fact that they believed he had committed tax evasion and filing a false sales tax return before they arrested him and charged him with a crime.
What he seems to have expected was an opportunity to pay to settle a criminal charge before it landed him in cuffs. This I should be able to pay to make it go away attitude seems especially prevalent in American society today.
This Montana car registration scheme is, I believe, often referred to as "loophole" not because it's legal but because so many people have been able to get away with it without consequence that it is seen by many as relatively low-risk.
Creating a LLC or other entity with no purpose except [checks notes] tax avoidance is not legal. That’s about as fundamental of a tax law as there is.
Setting up the LLC is not illegal. On its own, this is not tax evasion.
The tax evasion comes in when you fail to pay the use tax due and make false declarations or intentionally omit information when you make representations to the government (i.e. in tax filings).
The individual in question could have set up a Montana LLC, purchased a vehicle through it, paid the use tax due when he moved it to Tennessee and changed the registration within the 30 day limit.
Of course, there is no benefit of going out of your way to buy a car in Montana if you don't intend to drive it there, but the charges against this person relate to his failure to pay tax, not the mere fact that he set up an LLC.
Whats the penalty though?
If its just a monetary fine then there’s little reason to arrest somebody to immediately release them when you could’ve just told the accountant he needs to pay a fine or he’s going to be arrested.
Generally-speaking, this type of tax evasion is not treated the same as, say, making a mistake on a tax return that results in you owing a bunch of money to the state.
It's akin to intentionally defrauding the state.
A quick Google search indicates that willful tax evasion is a Class E felony in Tennessee, with a potential prison term of 1-6 years.
I think that could be actually illegal. The fact that you can do it, and also avoid taxes is different than doing specifically to avoid taxes.
Sounds sensible but I don't think that's actually a law. If doing something via a business legally reduces your tax bill then it is, by definition, legal.
As mentioned in the article, the exception is intended for when the majority of the business is conducted in the other state. If in fact you don't do any business in the other state at all, then you are lying and evading taxes. The law is not about how you set things up on Day 1, it's about whether your ongoing behavior is actually consistent with the requirements of the law.
"Any one may so arrange his affairs that his taxes shall be as low as possible; he is not bound to choose that pattern which will best pay the Treasury; there is not even a patriotic duty to increase one's taxes."
Gregory v. Helvering, decided by the US Supreme Court in 1935.
Edit: So if it's a legal arrangement that reduces taxes, then yes, it's legal.
> This I should be able to pay to make it go away attitude seems especially prevalent in American society today.
It works for the billionaire class, why shouldn’t it work for everyone else?
This is what’s ultimately going to kill what’s happening in the US today: when people in power decide that the rule of law is just a suggestion, they’re going to find that there are people willing to use that against them in ways that they’re not going to like.
> It works for the billionaire class, why shouldn’t it work for everyone else?
As George Carlin said, "It's a big club...and you ain't in it!"
When it comes to financial crime, billionaires get benefits, plebs get prison.
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Absolutely.
But make it illegal first. Make sure it's a "loophole" as opposed to what it currently appears to be: a specifically crafted loophole that over half the Fortune 500 can fit through.
> ...a specifically crafted loophole that over half the Fortune 500 can fit through.
There is no "loophole".
It is perfectly legitimate for a company to be incorporated in Delaware and to register as a foreign corporation in other states where it has a presence/does business. You can pick any random Fortune 500 company and look up its registrations in the states where it does business.
This is not remotely similar to setting up a shell LLC in Montana, purchasing a vehicle through it in Montana to avoid sales tax in another state, registering it in Montana and then physically moving it to another state without changing the registration and paying the use tax as required by law in that state.
The crime here is not about setting up a Montana LLC. Nothing about the Montana LLC made this car tax evasion scheme even arguably legal.
> It is perfectly legitimate for a company to be incorporated in Delaware and to register as a foreign corporation in other states where it has a presence/does business. You can pick any random Fortune 500 company and look up its registrations in the states where it does business.
It may be legal, but it's rather more questionable if it's legitimate: the latter is a value statement in casual language, even if legal jargon would be more precise.
If I do business with people in all states of the USA*, there should not be any particular state which attracts a majority of big (and everything bigger than "small") business registrations: other than network effects (e.g. everyone else does it so the corporate lawyers are all right there), anything pushing so many businesses to choose one specific state, be that for taxation or for a court system that presumes more in favour of businesses than elsewhere, this creates an uneven playing field for other states and who gets what powers of enforcement for business (/consumer) laws they pass.
Like, people here argue the EU is "anti-business": well, the American-registered factories (Tesla) and American-owned IT company offices (Apple, Microsoft, Google, etc.) are still here, and the shares are publicly traded so even us Europeans can own them, but they count as "American" because of where they (/their parent companies) are registered. Even Google Deep Mind (HQ: London) gets called "American" due to the ownership structure.
* A similar argument applies to the EU
I don't have time to go into a long-winded explanation of why so many corporations are set up in Delaware (there's plenty of information online about this) but I want to address this point:
> this creates an uneven playing field for other states and who gets what powers of enforcement for business (/consumer) laws they pass.
Setting up your company in Delaware does not mean that you are exempt from the business and consumer protection laws in other states.
If you're a Delaware company and you violate consumer protection laws in California, violate environmental protection laws in Colorado, defraud investors in Maryland, etc., the relevant authorities/powers in those states will all be able to exercise jurisdiction over you.
Being incorporated in Delaware does not mean you have free reign to do whatever you want in any other state and have disputes over your actions adjudicated in Delaware.
I feel like the law should differentiate a rich person doing this with many luxury cars versus me with one car who maybe in a few years needs to move across states.
For example, if I own a 2014 Nissan Versa and I register it in Colorado in January 2020 and then I need to move to Texas in August, I won't get Texas plates immediately when I get to Texas. I've "paid up" in Colorado for as long as my tags are good. I shouldn't have to get a Texas license plate until my existing one expires. However, I will eventually get Texas tags, just a few months too late.
Also I don't mind people going to Montana and buying luxury cars there if the cars actually stay in Montana. However, there should be scrutiny on these expensive toys more than regular cars we need to live because we don't have a decent transit story.
I feel like intent and magnitude should play a big role in legislation.
Huh? There is nothing illegal about setting up a corporation in Delaware or South Dakota.
If you have a Delaware corporation doing business in, say, California, and you refuse to register as a foreign corporation in California and follow the laws applicable to businesses in California, that is a different matter.
The Delaware corporation is perfectly legal; the failing to follow California's laws when your company is doing business there isn't.
Over half the Fortune 500 is incorporated in Delaware. Countless private companies are incorporated in Delaware and other states, with their owners properly registering as foreign corporations and paying applicable taxes and fees in second states where they do business.
The person in question wasn't arrested for buying and registering a car in Montana. He was arrested for not paying the tax he owed on it under Tennessee law after he brought it into Tennessee. The law there states that sales or use tax is owed on a vehicle if the vehicle is primarily housed and operated in the state.
Under Tennessee law, you are also required to change an out-of-state vehicle's registration to Tennessee if it's brought into the state and operated there for more than 30 days.
So, in summary, you can buy a car in Montana and pay no sales tax and it's not a crime. It becomes a crime when you use the Montana purchase to evade paying taxes in another state where you actually use and house the car.
Just in case you’re not aware, people have problems with Delaware LLCs because:
A) They can be used relatively easily (compared to other states) as shell companies because you do not have to identify yourself publicly when minting the company. B) The legal process corporations can choose to go through in Delaware are extremely advantageous to corporations (look up The Court of Chancery)
Are US companies, including Delaware LLCs, used as shells for dubious purposes? Yes. That the US is one of the better places to set up a shell company is a not-so-secret secret.
But it's not clear what use case you have in mind, and I think your comment deserves some qualification:
1. Even if disclosure of your name and personal details isn't required to set up a Delaware LLC, almost everyone is going to be identified anyway: through the registered agent, the EIN you obtain from the IRS, your bank. Sure, if you have a team of lawyers and layers of layers of shell companies across multiple jurisdictions, it's trivially easy to keep your ownership pretty effectively hidden but the minute you have any assets in or moving through the US, it's trivially easy for the authorities to figure out who you are once they have a reason to.
2. The legal "advantages" of Delaware basically aren't relevant to single-member/closely-held companies because you're not going to have any disputes with yourself over the corporate structure. If your Delaware entity is doing business in other states, you are exposed to the laws of those states as far as your business operations are concerned.
Delaware law is not so much favorable as it is well-trodden. Of all places here we should understand the value of the network effect.
Idk, I just have zero faith that corporations are not dumping money on the law decision makers for favorable outcomes.