California Cracks Down on Montana LLC Vehicle Registrations: $300M in Untaxed Luxury Cars Targeted
California is stepping up efforts to close a costly and increasingly popular tax loophole – using Montana LLCs to register high-end vehicles and avoid California sales and use tax. According to a Bloomberg Tax investigation, the California Department of Tax and Fee Administration (CDTFA) has flagged 1,500 vehicles, worth over $300 million, registered through 500 different dealerships under Montana LLCs.
The agency is now working to recover millions in unpaid tax by identifying both buyers and dealers involved in the scheme.
The Montana Loophole: How It Works
Montana is one of the few states with no sales tax, making it a hotspot for registering big-ticket purchases like exotic cars, luxury RVs, and rare motorcycles. Here’s how the strategy unfolds:
A buyer forms a Montana LLC, often through an online agent.
The vehicle is purchased and registered under the LLCs name in Montana – tax-free.
The vehicle is then brought into California for regular use, while bearing Montana plates.
For buyers of high-end vehicles, this can mean avoiding tens of thousands in sales tax. For California, it represents a substantial and unlawful loss of state revenue.
High-Value Vehicles:
Exotic & Luxury Cars: These vehicles can cost $200,000-$3M+, meaning that California’s 7.25%-10.25% sales tax could easily exceed $20,000-$200,000 per car – making Montana’s zero-tax registration very appealing. Exotic and luxury cars include:
Ferrari, Lamborghini, McLaren
Porsche 911 Turbo S, Aston Martin DBX, Bentley Continental GT
Rolls-Royce, Bugatti, Koenigsegg
High-End SUVs and Trucks: Buyers of premium SUVs often justify these as business purchases – Montana LLCs can be used to “own” them while avoiding sales/use tax elsewhere. High-end SUVs and trucks include:
Range Rover Autobiography
Mercedes-Benz G-Wagon
Ford F-450 Super Duty (fully loaded)
Toyota Land Cruiser Heritage Edition
Luxury RVs and Motorcoaches: This segment is notorious for Montana LLC use. Many RV dealers even offer Montana registration services as part of the sale. Luxury RVs and motorcoaches include:
Prevost, Newell, Entegra Coach
Motorhomes valued from $500,000 to $2M+
Collector Motorcycles and Specialty Vehicles: Motorcycle owners may use the Montana registration strategy not only to avoid tax, but to bypass local emissions and inspection laws. Collector motorcycles and special vehicles include:
Harley-Davidson CVO models
Ducati Panigale V4 R
Custom choppers and rare bikes
Track-Only and Imported Vehicles: Montana’s lax registration rules make it a popular workaround for vehicles that cannot legally be registered in states like California. Track-only and imported vehicles include:
Street-illegal imports like Nissan skylines (R34), certain McLarens or Koenigseggs
Vehicles that do not meet California smog or safety requirements
California’s Response: Data, Surveillance & Dealer Pressure
California officials are employing technology and inter-agency coordination to chase down violators. Key developments include:
Plate-reader technology is being used to detect Montana-plated vehicles operating within state borders.
The DMV and CDTFA are cross-referencing data to identify usage patterns that suggest the vehicles are housed and driven primarily in California.
Dealerships that sold these vehicles without collecting tax are being contacted directly. The state has already recovered $1.9 million from just 71 vehicles since last summer.
“This is about restoring fairness and making sure the tax burden isn’t shifted onto everyone else,” said CDTFA spokesperson Tamma Adamek.
California Isn’t Alone: A Multistate Crackdown Emerges
While California is leading the way in enforcement, other states are also stepping in to plug the Montana loophole.
Utah: Utah lawmakers recently passed legislation to enable cross-state data sharing between vehicle registration systems. The state’s tax commission estimates over $100 million in potential lost tax revenue from Montana – registered vehicles operating in Utah. It’s now using that data to pursue collections and penalties.
Illinois: Illinois has taken a different approach. It passed laws allowing tax authorities to “look through” LLC structures to identify the actual owners of the vehicles and real property. If the LLC has no legitimate business purpose and the vehicle is used in Illinois, the state will treat it as a sham entity and pursue full tax recovery from the individual behind it.
“States are now recognizing that this isn’t clever tax planning – it’s tax avoidance hiding behind paperwork,” said one Illinois Department of Revenue official.
Legal Gray Areas and Growing Risk
Proponents of the strategy argue that forming a Montana LLC is legal, and registering a vehicle in Montana is simply making use of favorable laws. However, courts and tax authorities increasingly view this setup as a sham transaction when the vehicle is operated in another state.
Use tax laws are clear: If a vehicle is used, stored, or garaged in California for more than 12 months, it’s subject to California tax – even if it was purchased and registered elsewhere.
Several states are also looking at legislation to pierce LLC anonymity or require proof of legitimate in-state business activity before honoring out-of-state registrations.
What Business Owners and Professionals Should Know
This isn’t just an issue for supercar collectors. Any business owner who has registered vehicles in Montana – or advised clients who have – should take note:
States are using DMV and tax department coordination to track behavior.
Entities with no business purposes are high-risk audit targets.
Dealers and registration agents may also be pulled into enforcement actions.
If your company, or your clients, are relying on this strategy, it may be time to reassess compliance and consider voluntary disclosure or amended filings before enforcement knocks on the door.
Final Word
California’s aggressive move to uncover and recover tax tied to Montana LLC vehicle registrations is just the beginning of a broader multistate trend. As data systems improve and states coordinate enforcement efforts, the once “clever workaround” of using Montana as a tax shelter for luxury vehicles is becoming an expensive liability.
If you are unsure whether your vehicle registration structure will hold up under audit, now’s the time to get ahead of it.
But what happens if the state decides it’s not just a tax oversight – but tax evasion?
In our next article, we’ll dive into potential legal and financial ramifications of getting caught in one of these schemes - including fraud, penalties, criminal exposure, dealer liability, and audit red flags. If you’re a high-net worth individual or business owner, you won’t want to miss it.