Imagine you could save thousands of dollars on the purchase of an RV or motorhome just by driving for a few hours.
Well, you may be able to. Or it may require flying – depending on where you live. And no, I’m not going to try and sell you a Montana LLC plan (though I am going to explain that concept too).
The short answer is –
- Florida and Arizona are considered good states for buying used RV’s in summer.
- Colder states like Minnesota and Montana are better for buying used RV’s during fall.
- Tax is paid in your home state so the only way to save on that is by changing your domicile.
And now for the (many!) caveats.
If you’re an American
If you’re a US resident or citizen, then odds are you’re thinking of buying in the state you live in. And that may not be a bad idea, as we’ll soon see. However, if you’re thinking of investing in an expensive RV – either a motorhome or a towing vehicle and trailer/5th wheel then read on.
You can actually save some money by buying a vehicle in a different state. It’s not always simple and the savings may not be worth the hassle if you’re buying a small sedan. However, when purchasing a $100K RV setup, you could be saving thousands of dollars by buying out of state – and that might be worth it after all.
If you’re not an American citizen or resident
If – like us – you’re thinking of coming into the US, buying a vehicle and then going on a dream road trip for several months – well, I’m sure the question of where to buy is on your mind.
I’m going to dedicate a separate post to non-Americans who want to buy a vehicle in the US.
Yes, it’s doable.
Yes, you need to know how and where to do that in terms of legal technicalities. I’ll cover that in the other post and will link to it from here once it’s ready. For now, we’re going to focus on the differences between states, which you need to know in order to make the right choice.
Which state to buy a vehicle in – does it really matter?
There are significant differences between states when it comes to purchasing a vehicle, and that may influence your decision on where to buy.
Just keep this in mind – the difference in price should justify the hassle. And it is a LOT of hassle. Getting to the location and bringing back an RV is one thing (which can be expensive). If you want to enjoy the tax benefits, it’s even worse because you’ll have to actually move your domicile to that state.
Which sounds crazy to most people but may just work for those who are about to embark on full-time RV’ing.
Ultimately, most states are going to come out in a wash if you’re purchasing an “ordinary” (i.e. low-cost) vehicle.
Let’s say you can save 10% of the vehicle’s total cost by purchasing in a different state.
If you buy a small used car for $3,000 then maybe you can save $300. Which may sound like a lot of money but once you factor in travel costs, time and the sheer inconvenience of traveling – possibly to the other end of the continent! – it clearly doesn’t pay off.
However, if you’re in the market for a large 5th wheeler that costs $200,000 then saving $20K could very well justify the time and money you’ll spend traveling to get it in a different state.
What are the differences between the states?
Let’s take a closer look at the differences between US states where it comes to buying your vehicle:
- Registration fees
- Sales Tax
- Insurance regulations
- Market value
Now, as for the first three items, there’s a caveat.
Regardless of where you buy your vehicle, you’re going to have to register it in your home state within 30 days of purchase. Which means you’ll have to pay registration fees and probably sales tax too – as per your own state’s rates. What’s more, you have to meet local regulations – including all inspections and insurance laws.
The only way around that would be to move to the state where registering your RV may be cheaper. Clearly, not something most people would do – but some may. If you’re planning on becoming a full-time RV’ers, you may consider changing your domicile to a state where registering your RV might be easier and cheaper too.
With that in mind, let’s talk about these items first, and see how they differ between states. That will make the first part of this post. In the second part, we’ll discuss how market value varies according to where you buy your RV and whether or not that justifies buying your RV out of state.
Wait, what about county regulations?
Excellent question – I’m glad you asked!
Yes, in many areas you need to follow county or city regulations too. That can affect the cost of registration fees as well as sales tax. Essentially, assume that everything mentioned in this post also applies to the county/city level.
Registration Fees (direct and indirect)
Vehicles need to be registered/licensed. In fact, that license is so important, it’s essentially carried on the vehicle in the form of license plates.
Registration comes at a fee which also serves as a form of taxation on vehicles. That’s separate from sales tax (which we’ll discuss later).
In addition to direct registration fees, some states have registration requirements which may incur additional costs.
Direct registration fees
You’ll need to register the vehicle to your name after you buy it. You do need a valid US address and sometimes a US driver’s license too. Some states also require a state-issued driver’s licence.
Registration fees can be determined by the vehicle’s worth (value-based), its age or weight. Some states don’t bother with calculations and just have a flat rate for registration fees.
Fortunately, the good people at the National Conference of State Legislatures created this great document which provides a state-by-state detailed list of all vehicle registration fees.
Indirect registration fees
Some states also require that your vehicle pass some form of inspection. Some need a safety inspection, some need an emissions inspection, and some do not need an inspection at all. States that do require inspections may want your vehicle inspected just once, or on a regular basis. Others consider the age of the vehicle, exempting newer ones from some or all inspections.
These inspections cost money too.
Moreover, if you’re traveling in your trailer on the other side of the continent, it may be a pain to drive all the way back home for your biennial test.
This excellent summary has a state-by-state comparison of the inspections required by each state. Where the demands are on county/city level they mention that as well and link you to where you can find more details. It’s such a great compilation, there was no need to repeat it here.
Auto Sales Tax(es)
Most states have some form of an “car sales tax”. This can either be the general sales tax which exists in 45 out of 50 states, or an additional tax specific for vehicle sales. If buying a new vehicle, you might be charged the tax by the dealership – just like you pay sales tax in any store. If you buy second-hand, you’ll still have to pay the tax when you register the vehicle at the DMV.
And remember that you’re going to register the car in your domicile. Which means that you’re going to pay the taxes applicable in your home state.
Here’s a quote from the federal DMV website –
Even though you’re buying a car from out of state, you’ll pay the sales tax to the state in which you’ll register the car—i.e. your home state.
And remember that it’s not just the states that want to take a bite out of your pretty new car. Taxes come from counties and cities too. In some areas, county and municipalities have vehicle excise tax or wheel tax.
So, how can you calculate the final amount of taxes and registration fees?
Well, fret a little.
You can get a good estimate of taxes you need to pay by checking the DMV website for states where you might want to make a purchase. You’ll need to know what kind of vehicle you’re about to buy – specifically weight, age and type.
Most states have a chart with registration fees. For example, this one by the State of Indiana. Let’s say that you want to buy a pickup truck and a 5,000 pounds trailer in Indiana, you’ll have to pay –
- $21.35 for vehicle registration for the passenger vehicle.
- $25.35 for registering the trailer.
- $15 for replacing the title
- Possibly another $9.5o if you need to change the plates too.
That’s a total of $71.20 in registration fees.
Indiana has no special auto sales tax but it does have a 7% sales tax which should be collected by the dealership or paid by the buyer when registering the new vehicle.
If you’re thinking of choosing a new home state from where to get your RV and take it on the road full time, then again, the NCSL document is your best bet for estimating how much you’ll need to pay in registration fees and taxes.
You didn’t think we were done paying, did you?
Every state has its own requirements regarding automobile insurance. Michigan, for example, is considered one of the most most expensive states for average automobile insurance costs, weighing in at $2,394. Maine is usually considered to be the least expensive, at an average cost of $864 annually. New Hampshire and Virginia don’t require any minimum insurance but of course, that doesn’t mean you don’t need it.
Other states fall fairly equally between these costs with about half being at the higher end and half being at the lower end. Auto insurance is calculated based on the likelihood of getting into an accident, the costs of property damage in that state, the medical costs in that state, and other factors such as the prevalence of car theft.
Basically, there are three types of mandatory insurance requirements:
- Bodily injury liability per person. This is the maximum amount that will be paid out for a person who is injured during an automobile accident.
- Bodily injury liability per accident (for all persons/injuries). This is the maximum amount that will be paid out for all people who are injured during an automobile accident.
- Property damage liability. This is the maximum amount that will be paid out for property damage during a single accident.
These numbers are often represented on policies in this format: “xx/xx/xx.”
Some states also require a minimum personal injury.
For example, in Alabama, you are required to have a 25/50/25 policy at minimum. That means that you will need to have –
- Liability insurance for a single person’s injuries at $25,000 minimum
- Liability insurance for multiple injuries at $50,000 minimum, and
- Property damage insurance at $25,000 minimum.
You can always get over these limits, but these are the minimums that you are legally required to have to drive a vehicle in the state.
It’s important to note that these requirements hold even if you are passing through a state. In California, the limits are 15/30/5. However, if your vehicle is registered in California but you are driving through Alabama, you will need to increase your coverage to 25/50/25.
Required limits don’t necessarily correlate to the cost of insurance; though California has some of the lowest required limits in the country, they don’t have the lowest insurance premiums in the country.
Here’s a full list of insurance minimums by state. You should still do your own research and check with that state’s DMV website before making a final decision.
So – can you avoid these fees and taxes?
Remember the most important thing here. If you’re a resident of the US and have no plans to move to another state just to buy your RV (which is perfectly understandable!) – then there’s not much you can do about any of these costs. Regardless of where you buy your RV or vehicle, you’ll have to register it at your local DMV – and pay accordingly.
IF – and it’s a big “if” – you’re about to go full-time RV’ing, then maybe moving to another state and changing your address accordingly could be worth it. The main item that you need to compare is sales tax. Registration fees, direct and indirect – are unlikely to be significantly high, but a difference of 8% in sales tax on a 150K motorhome could save you over ten thousands dollars.
But wait, we were going to talk about Montana.
What’s the Montana LLC Car Registration Loophole?
And as promised – I do want to mention the Montana LLC option aka “the Montana LLC loophole” or even “the Montana LLC scam”. I’ve also seen it called the “Montana license plate scam”
Ok, so remember that federal law that says you have to register your car in your home state?
In Montana, you don’t have to be an individual resident in order to register a vehicle. You can also be a Montana LLC (Limited Liability Company).
An LLC is a state-endorsed legal entity that can operate a business, get a tax paying number, open a bank account and… own property! Like a big fancy RV.
So, if you happen to own an LLC in Montana, that LLC can buy an RV and register it in the state. You – the individual – don’t have to live in Montana. You can have your address in California, New York or Texas. You’ll still be able to use the vehicle but the owner will be that LLC in Montana. Which you just happen to own.
And guess what, Montana has no sales tax. And also no inspections for vehicles. You can literally save tens of thousands of dollars by buying and registering an expensive car or RV there.
There are three issues here –
- Isn’t this tax evasion – in the immoral sense of the word.
- Is this legal?
- Does it actually work?
I’ll let you decide on the first question. This is a hot topic in RV and car forums and in the end, it’s a matter of opinion.
As for the second question: it’s legal in Montana. I am not a lawyer, but as far as I can see, you’re not breaking any federal law by constructing a shell LLC in Montana. And Montana itself doesn’t seem to care, so it’s not illegal. However – and this brings us to the third question – others states may disagree.
So, does it actually work?
Yes and no. People actually are doing this but there are substantial risks.
From what I’ve read, it’s entirely possible for another state to see this as simple tax evasion. If you get audited, one of the first things you’ll have to explain would be that fancy RV in your backyard with Montana license plates. And a shell LLC won’t be enough of an explanation. There’s a good chance that you’ll have to pay the tax on the rig and then some.
There is also the question of insurance. To register the car in Montana, you need to insure it in Montana. And if you state in the insurance forms that you actually live in the state and that the car will be kept there, you could be in trouble if you try to collect insurance money for an accident in Alaska. Now, it’s not that people aren’t allowed to take their cars out of state. It’s just that insurance companies tend to try and not pay up – and anything that’s not 100% kosher could give them reason to do so.
How the Local Economy Impacts Buying a Vehicle
For the most part, new cars are going to cost about the same wherever you purchase them. There is a manufacturer set purchase price, and though you are able to negotiate regarding the amount of money the dealership makes on the car, there is an upper limit to the discount.
Local economy matters far more when you’re purchasing a used vehicle.
Some areas have a much larger inventory of used vehicles. Naturally, this goes beyond the state itself. By that I mean to say that prices may vary between urban and rural areas, or according to regions within a state.
According to this report from 2016, the cheapest cities in America for purchasing used cars include:
- Miami, Florida
- Cleveland, Ohio
- Akron, Ohio
- Stamford, Connecticut
- New York, New York
If you live in a state close to Ohio, you could save up to 6.56% on your car purchase. If you live by Miami, you could save up to 10% — the aging population that tends to move to Miami often finds less of a need for personal vehicles.
According to this report, the most expensive places in which to buy used cars include:
- Fresno, California
- Albuquerque, New Mexico
- Reno, Nevada
- Portland, Oregon
- Bakersfield, California
These are all areas that already have a relatively high cost of living. Areas that have a high cost of living are going to have more expensive versions of everything, as everyone has more money to spend on vehicles, even if they are used. It’s them old rules of supply and demand.
Where to buy a used RV – by seasons
With RV’s being such a seasonal market, there are usually specific areas where people sell them at certain times of year. According to everything I’ve read, Arizona and Florida are often have a better supply of used RV’s, especially during summer. The theory is that older people make these states their home after several years on the road in an RV. And summertime is when it’s hot enough for RV owners to prefer to finally get into their actual house and enjoy a better air conditioning system than an RV would have.
On the other hand, colder states have a better buyer’s market during fall. The idea there is that people settle in for the winter and prefer to sell their rig rather than winterize the RV and pay for storage costs.
Over to you
There you have it – a summary of my in-depth research on where to buy an RV in the US.
Can you offer any tips or share your insights about which state is best for buying a towing vehicle or the RV itself? I’d love to hear them in a comment!