Insurance for 360/430, including out of state LLC ownership for tax purposes

There are a couple ways to legally avoid sales tax (and annual registration fees if your state has those) on car purchases. Keep in mind, I'm not giving legal advice here or advocating anything. I would just like to ask some questions and discuss what legal options we have to avoid or minimize sales tax, which, IMO, is a similar right to legally minimizing and avoiding as much income tax as possible. I'm posting in the 360/430 section b/c I have specific data points for these cars...

One way to avoid sales tax is to become a dealer, but that is difficult due to physical site loctions and actual inspections. I'm not sure how easy it is to get a dirt lot with a $500 beater for sale with a sign on a woodshack "Bob's used cars" and then have a Ferrari in dealership inventory that is parked in the dealer's home garage. Maybe it is that easy? Afterall, many states force you to become a car dealer if you are selling 5 or more cars per year, which many exotic flippers do, but I still think you need the physical location requirement to get a dealer license or they somehow prevent you from selling that sixth car, or they fee you?

The other option is to form an LLC in a state that does not tax car sales, or does so cheaply. Montana and Alaska are some options. Many people do this with not just exotics, but expensive RV's as well. A couple links: http://www.49dollarmontanaregisteredagent.com/montana-vehicle-registration.html and http://www.49dollarmontanaregisteredagent.com/montana-commercial-insurance.html

With respect to insurance, there are two options as the car will be bought and owned by the LLC: (1) carry commercial vechicle insurance on the car for LLC/car coverage and your own insurance policy (otherwise covering your regular DD) will protect you personally. (2) insure the car owned by the LLC on your personal insurance policy and name the LLC as a "named insured" on your policy. Option 2 is cheaper, and is pretty common practice and should be ok so long as you make clear the LLC's sole asset and purpose is ownership of the car. In that case, the car and you are on your personal policy and the LLC is protected by being a named insured so there is no open LLC liablity either. Without naming the LLC on your personal policy, in the event of an accident, while you are covered from a personal law suit, someone could sue the LLC directly and there would be no insurance coverage for the LLC itself, which ultimately would equite to personal exposure as you own 100% of the single member LLC and piercing the corporate veil in this situation should not be too difficult. Fortunately, it seems easy enough to simply name the LLC as an additional insured at no extra cost in this situaiton. As always, it makes sense to look into umbrella coverage as needed.

I've seen a lot of mixed reports on these tactics. Some people call it fraud, some say its perfectly legal, but for sure many people do it and save tens of thousands on sales tax. I have a law degree, and from what I have read, it appears to be legal if you are open about what you are doing. As you will be required to have the out of state license places (which another benefit of this is not having to mount the front plate or put it in the window when parked on public streets if your home state otherwise requires this), I am not sure what level of problems you may have with local police if you routeinly park your car on public streets. I would assume most do not do this with thier exotics, and the only time it would come up would be on speeding tickets or accidents. I'm not sure what the police could do in this situation if you are upfront about how the LLC you own, owns the exotic, which you primarily drive in your home state and is insured on your personal auto policy with the LLC as a named insured. The cops head would start spinning a bit. Feedback here is welcomed.

Please discuss all relevant details you are aware of, and I'd love some anecdotal reports from those who successfully employ such tactics. Again, I'm not suggesting anyone do this, just looking to learn more about it.

 

A related comment I wanted to make is that I attempted to do option (2) above with Geico. Supposedly they have no problem adding the LLC as a named insured to my policy, just like I had them do when I did a cashout-refi to arbitrage a 2.9% 5 year rate PenFed offered me after I bought my 996tt with cash. I got the cash at 2.9% to invest, Penfed got my title, and Geico added PenFed as a named insured on the Porsche.

Unfortunately, Geico is skittish at best about insuring a Ferrari. I called in January asking about F430 coverage and was initially given a (very favorable) quote based on $130k estimated purchase price, then told they could not underwrite it due to it being an exotic despite in thier system and not explicitly excluded, then when I threatened them about removing all my cars and insurance policies from them to another company if they did not, they came back and said they would underwrite the F430 afterall. This was all documented on my account in January. Currently, I'm actually leaning toward buying a nicely optioned 360 instead of the F430, and called Geico to get a potential quote and see about the LLC angle. I pay $808 ANNUALLY to insure an 04 G35 coupe and 02 Porsche 996tt, and to add the 360 they quoted me $1,130 annually (which is fantastic; $1k deductibles on all cars, clean record, max liability coverage, 3 vehicles and work at home so no work commute so all pleasure commuting at 4k,4k, 3k miles estimated per car). Unfortunately, the rep came back from underwriting saying they could generally name an LLC on the policy if it's only puropse was ownership of a car, but unfortuantely they could not insure the 360 b/c it's an exotic (after it came up in their system and I got this quote). So I made the same threat as last time with the F430, got a supervisor who seemed like she wanted to help and spoke to two other underwriters and an underwriting supervisor, and all said no, they could not underwrite a Ferrari 360 with an estimate purchase price of ~$70k.

Geico is pulling some crap, which I'm putting up with becuase of thier low pricing. I asked why it came up in thier system and I got a quote only to be told later they can't do it, why the same thing happened with an F430 quote in Jan worth nearly 2x as much, yet they eventually said they could underwrite the F430, but now cannot underwrite a 360 coupe? She said they really don't insure cars worth more than $60k, which I replied that know two people with a $100k Merc and a $95k 2012 GTR who both have Geico insurance, so how is it they can't cover a $70k 360 coupe? I eventually gave up, and will have to try again later and hope there isn't a note on my acount that says no 360 coverage now since I'm sure this is fungible.

I called Hagarty today for a quote for the 360 with 2k miles expected to be driven (more likely 3k-4k), and they said $2,160 for JUST the 360. I told them what Geico quoted me and they said thier quote was so high b/c I am 26 and to check back when I'm older. I informed them that I was also 26 on my Geico policy, so why are they 500% more expensive. Lovely.

So now I not only have to figure out the sales tax purpose in the first post, but also where to get reasonably priced coverage if I can't get Geico to play ball. Sales tax is not a major issue for the 360, but I hate to flush $5k+ if I don't need to, and I really want to be able to buy/flip future cars more often without having to plan to keep them so long to average out the sales tax hit.

 

I really don't know where to figure this info out. Like I said, it's not like these cars will be parked out on the street in the same spot every day where the meter cops will see the out of state license plate daily and start getting suspicious. On the other hand, in places like Ohio, any Ferrari stands out and the same cop may remember seeing it and bring up the license plate issue just to be an ass, or perhaps incidentally to getting a speeding ticket. I really don't know what or how they would go about enforcing dissatisfaction with this, and I've been digging with the Ohio DMV rules online and cannot find any language addressing the issue for when cars used within the state must be registered/titled in Ohio. I'm almost tempted to try calling the DMV and asking, but that would just be crazy.

 

With all due respect, I disagree with your point. I can "afford" to rent a villa for $20k a week when I vacation in CA next month, but that doesn't mean I'm not using Priceline's name your own price with cashback opportunities b/c I don't wish to be wasteful and pay for things I don't need or want to. I can afford whatever Ferrari I want, but that doesn't mean I want to chase the latest model with the steepest depreciation curve and that I am content paying five figures of sales taxes if there are legal ways to aviod it. More importantly, I'd like to have the ability to buy cars with expectation of shorter ownership duration and not feel like I'm required to keep them for years and years to spread out the tax hit. Most of the big players with millions and millions of dollars worth of cars do somethign like this, and I'm sure they can all afford to pay the sales tax if they wanted.

I guess someone can call people who take legal options to minimize taxes "rats," but how far do you want to extend that accusation? Would buying a home with an equivalent mortgage to your monthly rent for the purposes of taking advantage of the income tax savings make you a "rat?" If not, then taking advantage of state receprocity laws do not make you a rat either in my humble opinion.

 

For what it's worth, I found out what I'm looking for with respect to Ohio's regluations on this. The short of it is "an out of state, closely held corp owning personal property will be deemed a entity of Ohio for tax purposes against the personaly property the shareholder is primary using within Ohio for personal enjoyment."

There are, however, plenty of legal ways to avoid this applying, some taking more effort than others, but all of them legal. I've got some ideas, but since the laws of each state vary, and some states are more strict than others in this regard, it doesn't make much sense to get into the nitty gritty with Ohio's laws here though.