Taxpayer Not Personally Liable for Tax on RV Purchased by LLC

May 13th, 2014

The Louisiana Supreme Court recently ruled that a taxpayer was not personally liable for tax on an LLC's purchase of an RV even though the LLC was formed solely to avoid paying tax on the RV.

The taxpayer, a Louisiana resident, formed a Montana LLC so that he could buy a recreational vehicle (RV) in Louisiana without paying Louisiana sales tax. The taxpayer titled the vehicle in Montana. The taxpayer then kept the RV in Mississippi.

Louisiana taxes sales of tangible personal property, including RVs. Louisiana law does not generally permit the state to go after an individual for an LLC's tax obligation unless the individual commits tax fraud. Montana does not impose sales tax on its residents' purchases of vehicles. This includes purchases made by resident LLCs. The Louisiana Department of Revenue ("Department") assessed tax on the taxpayer's purchase. It assessed the taxpayer rather than the Montana LLC.

The court held that the Department should not have assessed tax on the taxpayer personally. The Department should have assessed the LLC instead. Although the Department can hold an individual liable for a company's tax obligations if the individual commits tax fraud, the Department did not seek to do so here. Also, the court noted that using legal loopholes to avoid tax was not tax fraud anyway. The Department thus could not go after the taxpayer personally. The Department should have assessed the LLC instead.

http://www.lasc.org/opinions/2014/13C1855.opn.pdf