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The famous “Montana license plate loophole” is an apparently appealing concept. It allows car, boat, and RV buyers to form a limited liability company (LLC) that is technically domiciled in Montana, then buy and register their new vehicle in the LLC’s name. It’s possible to do this without ever stepping foot or turning a wheel in Big Sky Country. The next step is simply to slap on the shiny new Montana license plate and enjoy. For enthusiasts in high-tax states and highly regulated states like, say, California, the Montana loophole can potentially save tens of thousands of dollars, because Montana assesses no sales tax or state vehicle inspections, nor any emissions rules. The loophole has gotten popular enough that, according to Bloomberg, by 2023 there were more than 2.3 million registered vehicles “in” Montana, a state with a population of a little more than 1 million, and just 879,000 licensed drivers.
Other states have taken notice of this and started looking into things. Last month, for example, California officials posted a 57-count complaint and charged 14 people in a tax-evasion scheme related to Montana vehicle registrations. Charges from the California Attorney General’s office include conspiracy, filing false sales tax returns, failure to file consumer-use tax returns, perjury by declaration, and money laundering.
According to the California Department of Tax and Fee Administration (CDTFA), the agency has also identified nearly 500 dealers involved in more than 2500 vehicle sales since 2023 to customers claiming to use the vehicle in Montana. It has also “opened more than 400 investigations into high-end automobile purchasers and begun nearly 300 audits of dealers related to vehicle sales to no-tax states, including Montana.” The main targets, the agency says, are “high-end automobile dealers and their customers through investigations and audits.” The CDTFA also claims the so-called “Montana Loophole” costs the state more than $10M per year in revenue, and that 81 criminal investigations since June 2023 have identified 601 fraudulently registered vehicles, resulting in $2.3M in recovered registration and taxes.
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As for the 14 individuals charged in this latest crackdown, they are alleged to have prepared and submitted false California tax and fee forms as well as false registration forms and false bills of lading. Some of these false documents claimed the cars were for out-of-state use, even as the cars went to California buyers for use in the state. Cars bought in California, by Californians, for use in California, are subject to state taxes, fees, and inspections. Residents owe state sales tax on vehicles that are not first used and stored out of state for at least 12 months.
The 56-page document put out by the California Attorney General’s office includes the charges, the names of the 14 defendants, and some revealing text messages used to build the case. Some of them read as follows:
“Lana made me provide a fake bill of lading which cost me $200 but did allow me to pickup [sic] the Urus.”
“Just gotta throw some generic signatures.”
“We’ll make it to Montana in about 45 min” sent from Santa Clara County, CA, about 1000 miles from Montana.
“don’t want the state of California to know anything about this car.”
“70k saved – I can’t believe the registration lasts for 5 years – that’s crazy. Stupid California. Paid 3k to own a 600k car for 5 years – lol in Cali that’s like 75k for 5 years. Hella dumb.”
“We need to ship a 488 pista from San Mateo to Campbell but on the bill Of lading [sic] put it’s going to Montana”
“Definitely move the cars. Or get them registered. This guy [a California DMV investigator] isn’t playing around.”
The vehicles referenced in the document are mostly exotic sports cars and luxury vehicles. They include a Porsche 918 Spyder, Porsche 911 GT3RS, Porsche 911 GT2RS, Ferrari SF90, Ferrari 488 Pista, Ferrari F12tdf, Lamborghini Huracán STO, Lamborghini Huracán EVO Spyder, Lamborghini Huracán Tecnica, Lamborghini Aventador Ultimae, McLaren 765 LT Spider, McLaren Elva, BMW X7, and BMW M2.
Rob Siegel
This is not the first crackdown on those seeking to take advantage of the Montana loophole. In 2018, the Georgia Department of Revenue identified two individuals who had dozens of cars that were registered with Montana LLCs but stored and used in Georgia. Massachusetts and Colorado have both gone after RV owners for allegedly abusing the loophole, and there are cases in which California investigators showed up at individuals’ homes with a search warrant.
If this latest news is any indication, the investigations and crackdowns in California seem likely to continue. “CDTFA is working to close this loophole that erodes California’s revenue base,” according to CDTFA director Trista Gonzales. “Our department is identifying questionable transactions through state partnerships to protect the integrity of California’s tax system while ensuring the tax is paid to support our schools, roads, public safety, and essential services that all Californians depend on.”