South Dakota Officials Target Vehicle License Plate Fraud

It’s no secret that South Dakota’s low taxes and lenient vehicle registration policies have made the state a haven for out-of-staters who license vehicles here.

License plates are cheap, and so is the state’s excise tax on vehicles. There’s no state income tax, and the law allowing out-of-state people to register their vehicles does not require them to set foot in the state to get South Dakota plates. The state is especially popular with people who live full time in recreational vehicles, a growing trend among baby boomers heading off to retirement.

But South Dakota officials are attempting to crack down on abuses of the system. Debra Hillmer, director of the state Division of Motor Vehicles, recently sent a memo to county treasurers asking them to demand more information from out-of-state residents before issuing licenses. A similar memo went to 10 mail-forwarding businesses, services popular with people who live outside the state but have vehicles registered here.

The goal, Hillmer said, is to discourage falsified applications and collect information on where people really reside. Ultimately, that information could be used by other states to crack down on their residents who license cars, boats and motor homes here.

But critics say it could cost South Dakota millions of dollars by discouraging out-of-state registrations. South Dakota’s licensing fees help counties pay for road repairs, and the state collects a 3 percent excise tax on vehicles purchased and then licensed in South Dakota. New motor homes can cost hundreds of thousands of dollars and the tax revenue adds up.

Larry Sroufe, who owns the Sioux Falls mail-forwarding business Your Best Address, said his customers are wary of the new rules. He thinks they could deter registrations and hurt his business. He said it’s not just the taxes that South Dakota will lose if that happens. Sroufe said many of his clients use South Dakota insurance brokers, lawyers and other professionals who also stand to lose business.

“There’s a small fortune in annual renewals that are cumulative,” Sroufe said. “The average RVer is an RVer for years. If someone just dismisses this and says it’s not that important, this is someone that’s not very bright.”

Ronald Triebwasser, who owns My Home Address in Emery, also is upset.

“It’s ridiculous, and we’re going to have a lawyer look into it,” he said. “I don’t know what they’re thinking up there. They bring a lot of jobs and money into South Dakota, and they’re screwing it up.”

State law allows a person to license a vehicle by providing a South Dakota driver’s license or a Social Security number with the application.

Hillmer is requiring county treasurers, who handle licensing, to get a copy of photo IDs from people outside of the state, and she wants their applications to include their true residential addresses.

Applicants who use a South Dakota mail-forwarding address now are required to sign an affidavit swearing they have no other residence outside of South Dakota. A person who lies on the affidavit could be charged with a class-six felony.

Combating Falsified Information

Hillmer said rule changes were needed because some people listed campgrounds as their residential addresses, even though they never had been there. Others used bogus Social Security numbers. By law, she added, anyone can register a vehicle here. She just wants accurate information on their applications.

And there are other issues. Hillmer said some people register vehicles here to avoid child support or because they’re sex offenders in other states. Some do so to avoid insurance requirements in other states.

People who claim to live in motor homes full time, “nomads” as they’re called, are required to sign an affidavit saying they have no other address.

“I have no issues with people coming here that are nomads and registering here,” she said. “That’s not what we’re trying to stop here.”

In the weeks since the new rules came down, Sroufe said he’s heard plenty of negative comments from potential customers. The question of whether a person can be deemed a nomad can be complex, he said.

Some people do own homes in other states, but they rent them out. Many of his customers are construction workers who spend a few months at a job site in one part of the country before moving on to another location. Others are preparing to sell their homes and getting ready to embark on the RV lifestyle full time.

“The nature of my customers runs the gamut – it’s all over the map – and don’t fit the narrow little range she has in her letter,” he said.

But Hillmer said those situations can be addressed by the person signing an affidavit. They can say they own property in another state but rent it out.

“You can kind of tell who a nomad is,” she said. “They don’t own five cars and two boats and five motorcycles.”

Low Fees, Attractive Tax Laws

It’s not just the low licensing fees that make South Dakota an attractive place to register a vehicle. There’s no state income tax, and there are no state taxes on inheritances or personal property. And unlike other states, South Dakota doesn’t require vehicle inspections or emissions tests.

How much money is generated from out-of-state registrations? Nobody knows because some use bogus addresses. But the mail-forwarding businesses offer a starting point for gauging the number.

In April, there were more than 16,000 vehicles registered with 10 forwarding businesses in South Dakota, Hillmer said. Most, but not all, probably were registered to people who live outside the state.

Minnehaha County Treasurer Pam Nelson said employees in her office have spent hours talking to people who are angry about the new rules. She predicts the state will lose tax revenue.

“I have no idea, but I think it’s a significant amount of revenue,” she said.

As states across the country grapple with budget problems, some are raising fees on vehicle registrations and stepping up enforcement on residents who evade taxes by registering in lower-fee states such as South Dakota.

“I think what we’ve got is the issue is growing and growing and growing,” Hillmer said.

And while she said she has not been pressured by officials from other states, she has turned over South Dakota’s registration data to Nebraska and Minnesota, allowing those states to crack down on residents registering in South Dakota.

“If a state asks me for the information, I will share with them,” she said.

“If the shoe was on the other foot, and all of our people were registering in their states, what would we say? We would say, ‘Nebraska, you share that information with us,”‘ she said.

South Dakota, Hillmer agrees, does benefit from out-of-state registrations, but she thinks the questions surrounding the practice need to be clarified by lawmakers.

“I think this is going to be a discussion during the legislative session,” she said. “There are some aspects of it that are good for South Dakota. But let me ask you this: What happens when those states come after those people and we lose that revenue? Have we created a false revenue? Have we created a false revenue for our counties to support their infrastructure that will be taken away?”

Sen. Mike Vehle, R-Mitchell, is chairman of the Senate Transportation Committee. He was not informed ahead of time about the new rules, but he said he supports the concept. If somebody has a home in another state, they should register there. If they’re truly nomads, “then we’re happy to have them.”

Sroufe questions why officials are helping other states collect taxes at South Dakota’s expense. Other states have raised prices so high that it’s become a burden for their residents. “What are they going to do for us? The answer is zero,” he said of the other states asking for South Dakota’s help.

RVers, he added, have special needs that don’t fit the common legal definitions of residency used by some states. About 1.5 million people are “nomads.”

“Do we want to turn them away, or do we want to take the money?” he said.

Nebraska and other states probably will appreciate Hillmer’s efforts. In 2007, Nebraska sent its driver’s license database to South Dakota and Iowa, where it was compared with those states’ vehicle registration databases. Iowa and South Dakota returned 13,000 matches, and about 8,000 of those came from South Dakota, said Beverly Neth, director of the Nebraska Department of Motor Vehicles.

South Dakota, Hillmer said, lost about $1 million in revenue.

In Nebraska, where a typical new car can cost more than $600 to register, there’s plenty of incentive for residents – even those in the southern part of the state – to register in South Dakota where the cost is about $55, Neth said. Nebraska has stepped up its fraud investigations, and people regularly report their neighbors who register in South Dakota.

“People are still ratting each other out almost on a daily basis,” she said.

Shortly after becoming director in Nebraska, Neth said she was driving into Lincoln, Neb., when she encountered buses belonging to the Harlem Globetrotters basketball team. The buses, she noted at the time, were registered in South Dakota.

Information from: Argus Leader, http://www.argusleader.com