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If you spend any time around car forums, enthusiast groups, or even scrolling through social media, you’ve probably seen the ads. They usually promise the same thing: set up a Montana LLC, register your car there, and potentially save thousands in sales tax.
What started as a niche workaround has grown into something bigger. There’s now a small cottage industry built around helping buyers register vehicles in Montana, complete with companies offering to create LLCs, act as resident agents, and handle registration paperwork for out-of-state owners. The strategy has become so common that Montana plates on exotic cars have almost become a meme among enthusiasts.
But regulators in several states are beginning to pay closer attention. California officials recently announced a major investigation into the practice, often referred to as the “Montana Loophole.”
According to the California Department of Tax and Fee Administration (CDTFA), investigators have identified nearly 500 California dealerships involved in more than 2,500 vehicle sales since 2023 to customers claiming the vehicles would be used in Montana.
Many of those transactions involve luxury or exotic vehicles, and regulators estimate the practice costs California more than $10 million a year in lost tax revenue. The state also released a list of cities where the largest number of these transactions occurred.
Beverly Hills topped the list with 416 sales, followed by Costa Mesa with 359 and Van Nuys with 273. Other cities appearing in the top ten include San Diego, Murrieta, Irvine, Santa Monica, Newport Beach, Mill Valley, and Carlsbad.
Officials say the investigation focuses not only on buyers but also on dealerships suspected of facilitating questionable transactions.
“CDTFA is working to close this loophole that erodes California’s revenue base,” CDTFA Director Trista Gonzalez said in the agency’s announcement. “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.”
The enforcement effort is already significant. According to state officials, CDTFA has opened more than 400 investigations involving high-end vehicle purchases and begun nearly 300 audits of dealerships tied to vehicle sales involving customers claiming residence in no-tax states such as Montana.
Meanwhile, investigators with the California Department of Motor Vehicles have pursued 81 criminal investigations since June 2023. Authorities say those cases have identified 601 vehicles that were fraudulently registered and recovered roughly $2.3 million in unpaid registration fees and taxes.
Under California law, residents generally owe sales tax on vehicles purchased out of state unless the vehicle is first used and kept outside California for at least 12 months before being brought into the state. Buyers who falsely claim out-of-state use can face substantial penalties, including assessments equal to 50% of the unpaid tax.
The strategy itself isn’t complicated. When someone buys an expensive vehicle in the state where they live, they normally owe sales tax when the car is registered. In states like California, the total sales tax rate can exceed 10 percent depending on the local jurisdiction.
That can add up quickly. On a $300,000 supercar, the tax bill alone could easily reach $30,000 or more.
Montana is different. The state has no statewide sales tax and allows non-residents to form limited liability companies that can legally register vehicles there. Because of that, some buyers create Montana LLCs and have the company technically purchase and register the vehicle.
In effect, the car becomes a “company vehicle” owned by a Montana business, even if it spends most of its time in another state.
As Hagerty explains, the arrangement can potentially save buyers “tens of thousands of dollars” compared with paying sales tax and registration fees in their home state. A number of firms in Montana specialize in setting up these LLCs and acting as registered agents for out-of-state buyers, helping handle paperwork and vehicle registration.
The popularity of the strategy has had a noticeable effect in Montana itself. According to reporting cited by Hagerty, the state has an unusually high number of vehicles per capita.
Montana has roughly 1.1 million residents but far more registered vehicles, with registrations per capita far exceeding the national average. Vehicle registrations have also become a meaningful source of revenue for the state government.
From Montana’s perspective, the system works well. Registration fees are collected from vehicles that often never set foot on Montana roads.
The problems tend to arise in the states where those vehicles are actually driven. Many states require vehicles to be registered locally if they are primarily kept there, and those states can pursue unpaid sales or use taxes if authorities determine a vehicle is being improperly registered elsewhere.
California’s investigation reflects a broader trend of states paying closer attention to out-of-state vehicle registrations.
One recent high-profile example involves automotive YouTuber Cody Detwiler, better known as WhistlinDiesel. The Tennessee-based creator was arrested on tax-related charges connected to a Ferrari F8 Tributo he purchased in 2023 and registered in Montana. Authorities allege the move was intended to avoid paying Tennessee sales tax on the vehicle.
Detwiler has publicly disputed the allegations and said he plans to fight the charges. Regardless of how that case ultimately plays out, it highlights how regulators across multiple states are increasingly scrutinizing Montana LLC vehicle registrations.
The issue has also sparked debate among car enthusiasts online, where Montana plates have long been a familiar sight at exotic-car meets and luxury dealerships.
Some commenters argue the practice amounts to tax evasion when the vehicle is primarily used in another state.
“Well, if people would stop committing fraud/tax evasion by creating fake LLCs in Montana, this wouldn’t be a problem,” one Reddit user wrote in a discussion about the enforcement push.
Others say high vehicle taxes and strict regulations are part of what drives some owners to seek alternatives.
“If California would stop charging $500-$1,500 per year for registration, this loophole wouldn’t exist,” another commenter wrote.
Some enthusiasts also point to emissions rules and vehicle modifications as another reason some owners explore out-of-state registrations. Others argue the real issue is much simpler.
“The issue at hand is sales tax,” another commenter wrote. “A vehicle registered to an LLC in Montana is exempt from sales tax.”
Regardless of where enthusiasts fall in the debate, the growing number of investigations suggests regulators are paying much closer attention to the practice than they once did. For years, Montana plates on exotic cars were mostly seen as a clever workaround. Now, they may be attracting a lot more scrutiny.