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Senate passes tax break for RVs

Those RVs that lumber across the Sierra Nevada or zip across the Mojave
Desert are looking for more than camp sites. They’re also on the prowl for
tax breaks–and they’re finding them.

At first blush, RVs would seem unlikely candidates to grab the political
stage in the Capitol. But in fact, California’s $2.1 billion
recreational-vehicle industry is at the heart of a debate over whether to
allow some $160 million in tax breaks, a move that one critic of the bill
said would “dismantle sales tax law enforcement as we know it.”

“There is a tax loophole here big enough to drive an RV through,” said Sen.
Mike Machado, D-Linden, the head of the powerful Revenue and Taxation
Committee, who unsuccessfully fought the proposal in the Senate.

RV lovers and dealers say that’s preposterous, and note that the plan that’s
in the works in the final weeks of the 2005-06 legislative session is
designed to give a boost to home-based dealerships and treat RV owners the
same under the law as boat and plane owners. The supporters include Bill
Leonard, a member of the state Board of Equalization, and Sen. Carole
Migden, D-San Francisco, the former Appropriations Committee leader who
pushed the plan through the Senate. The bill is sponsored by the California
Recreational Vehicle Dealers Association (CalRVDA).

“It’s not a tax break at all,” Andy Coyle, president of CalRVDA and the
owner of Canyon RV Center in Colton. “The Board of Equalization, which
collects the taxes and knows the issue best, said there was no abuse here.
The mom-and-pop RV owners are usually not as well off as boat or plane
owners, and they need to be given equal treatment.”

The debate focuses on two issues–RV sales taxes and warranties.

The law says that a California RV buyer must pay California sales taxes,
which, by one estimate, often reach $16,000 or more per vehicle. But those
taxes can be avoided if the RV is registered and kept outside the state for
a year. Thereafter, the buyer also can avoid California’s annual vehicle
levies–or “use taxes” in government speak–by spending less than six months
of the year in the state.

Some 10,000 California-bought RVs are doing just that, according to a state
investigator. Many of them are kept–at least on paper–in Montana, where
state law specifically encourages the practice. Amazingly, Missoula County,
Mont., with 95,000 residents, ranks fifth nationally in RV registrations.

Robert Morgester, a special crimes unit investigator with the state attorney
general’s office, estimated that 1,000 to 2,000 LLCs are created monthly,
and that some 36,000 LLCs already have been set up in Montana, most of them
for California RV enthusiasts.

“A number of California residents are accepting out-of-state delivery and
bringing the vehicle into California for the sole purpose of avoiding fees
and taxes,” Morgester told Machado’s committee. The Emmerson bill “would
make it harder to detect and prosecute Californians who use out-of-state
registration to avoid California taxes and fees.”

RV enthusiasts and others say the sales-tax break is no secret.

“In fact, it seems to be the leading topic of conversation at campground RV
parks around the nation,” Adam O’Connor, an RV finance specialist, wrote in
LVIndex.com, a Las Vegas information site. “In order to avoid the extra
expense often associated with RV ownership, a number of campers have been
flocking to Montana, where RV buyers can save thousands of dollars in taxes
and registration fees by setting up a limited liability corporation.”

Indeed, California RV dealers seeking to boost sales are pointing out the
tax break to potential customers, and many offer to arrange out-of-state
delivery as an added perk. It’s a hefty piece of change, especially for new
RVs that routinely cost $100,000 to $150,000, but often cost much, much
more.

For example, a new 42-foot Eagle by American Coach may cost more than
$500,000, while the price tag for the 2007 Affinity model by Country Coach
is more than $890,000, according to Lazydays.com, which specializes in RVs.

Dozens of RVs listed on that site and others cost more than $200,000 each.
Sales tax on the Affinity would total nearly $69,000 if purchased in
Sacramento, which has a 7.75 percent sales-tax rate. If bought in Los
Angeles, where the sales tax is 8.25 percent, the tax bill for the same
vehicle would be about $72,400.

Coyle acknowledges that some RVs may cost in the high six figures, but he
said the average sales prices are far lower, according to industry figures.
“They are in the $20,000 to $40,000 range,” he said.

A similar situation exists with yachts and planes, which typically cost more
than RVs. Two years ago, their out-of-state time restriction, which had been
90 days, was expanded to a year, following press reports that California
customers were reaping huge tax breaks by simply berthing their craft out of
the state for three months. Those craft can return to California for
warranty-covered repairs and maintenance.

RVs, however, were treated separately than yachts and airplanes. They’re
supposed to stay outside of California for warranty work, and that’s the nub
of a bill, AB 2239 by Assemblyman Bill Emmerson, R-Redlands.

His bill, which emerged from the Senate in a 22-10 vote, allows the vehicles
to come back to California for warranty work and maintenance. One ironic
note: Machado’s Revenue and Taxation Committee earlier approved the
bill–much to the surprise of one Capitol insider, a foe of the bill, who
watched the hearing. “Machado has a good record of stopping this stuff. But
what happened is that Machado had left the room to go to another hearing,
and this bill was approved while he was gone. I heard later that he was not
happy.”

Leonard believes the bill helps both dealers and buyers.

“The focus I have is on the [RV] dealers. They are at risk of not being able
to sell their products if they can’t offer warranties to people who are
taking their vehicles out of state. There are more and more people who can
afford two homes and split their time, and as far as they are concerned,
they’d just as soon buy their RV outside. It’s a good thing if they choose
California,” Leonard said.

“Our rules are really pretty tight,” Leonard added. “If you really live in
two states and you have a place to park your RV, it is easy to comply with
our laws

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