Out-of-State LLC Vehicle Registration Scheme

The Department of Revenue is aware of a scheme to evade sales tax on vehicles purchased for use in Tennessee involving out-of-state limited liability companies.  Advertisements on the internet solicit individuals to set up an out-of-state limited liability company with the promise of not paying sales taxes on vehicle purchases.  The states typically advertised in these schemes include Montana, Alaska, and New Mexico among others.

Tennessee Taxes on Vehicles

Tennessee law imposes a 7% tax on the retail sale of automobiles and other tangible personal property and an additional single article tax at the rate of 2.75% on the sales price amount in excess of $1,600, but less than or equal to $3,200, for individual items. See Tenn. Code Ann. § 67-6-202.

For vehicles purchased in Tennessee, auto dealers are required to collect sales tax from their customers.  That tax will be charged unless a three-day removal affidavit is completed by the purchaser and the seller.  The affidavit is signed under penalty of perjury and states that the purchaser will remove the vehicle from Tennessee within three days for use in another state. Additionally, Tennessee imposes a use tax on property used, consumed, distributed, or stored for use or consumption in Tennessee at the same rate as sales tax.  See Tenn. Code Ann. § 67-6-203. This tax applies to vehicles purchased out-of-state and brought into Tennessee for use.

Tax Due on Vehicles Bought for Use in Tennessee

These out-of-state limited liability companies will owe tax on vehicles purchased inside or outside of Tennessee if that vehicle is bought for use in Tennessee. The fact that an LLC was formed or is located outside this state and owns the vehicle does not create an exemption from tax for vehicles primarily used in Tennessee.

The Department has conducted investigations of vehicles improperly registered outside of Tennessee that have led to successful prosecutions across the state and has engaged in numerous compliance audits to recover taxes, penalties, and interest.

Please be wary of claims that suggest that you can buy a vehicle tax free through this process if the vehicle is purchased for use in Tennessee.

Report any violations to our Special Investigations Unit via the button below or by calling (800) FRAUDTX.

If you had believed claims that you can buy a vehicle tax free through the creation of an out-of-state limited liability company, you are encouraged to come forward and pay your Tennessee sales or use tax. Taxpayers who have not been contacted by the department may request a voluntary disclosure agreement to report their prior tax liability.