Montana plates have become a familiar sight on expensive cars thousands of miles from Montana. For some California owners, that arrangement has offered a way to avoid a hefty tax bill on a Ferrari, Lamborghini, or similarly expensive purchase.
California has now tightened the rules. Gov. Gavin Newsom signed SB 1406, legislation aimed directly at residents who create out-of-state shell companies to purchase and register vehicles while primarily using them in California.
The practice works because Montana has no statewide sales tax, making it attractive for high-dollar vehicle purchases. An owner can form a Montana LLC, have the company purchase the vehicle, and obtain Montana registration even though the car spends its life somewhere else.
State Sen. Jerry McNerney introduced SB 1406 earlier this year specifically to target those arrangements. According to his office, the law took effect immediately after Newsom signed it.
California Says It’s Losing $20 Million A Year
The scale is larger than a handful of supercar owners looking to save some money. The California Department of Tax and Fee Administration estimates that at least 2,500 vehicle sales involving California residents have used the Montana setup since 2023.
State officials estimate the practice now costs California approximately $20 million in tax revenue annually. Earlier this year, authorities also investigated 14 Californians accused of failing to report over $20 million in luxury vehicle purchases and allegedly avoiding more than $1.8 million in taxes.
A Montana LLC Won’t Automatically Get You Around The Rules
SB 1406 expands how California determines residency for sales and use tax purposes. A shell company can now fall under California’s definition when at least one member of the business is a California resident, while the state can pursue individual members for tax liability.
Authorities can consider several factors when deciding whether a company is effectively a shell. Those include having no specific business activity, no physical location outside California, no employees receiving W-2s, or failing to file applicable federal or out-of-state tax returns.
That doesn’t mean every California resident with a Montana-registered vehicle is automatically breaking the law. Vehicles legitimately owned, kept, and operated outside California can involve different tax circumstances; the legislation targets arrangements designed to avoid California taxes through shell-company ownership.
Those Montana Plates Could Get More Attention
The attraction of the Montana setup is easy to understand when six- and seven-figure cars are involved. Avoiding California tax on a particularly expensive exotic can mean keeping tens of thousands of dollars in your pocket.
SB 1406 makes the shell-company route much harder for Californians who actually keep and use their vehicles in the state. For California supercar owners accustomed to seeing Montana plates as a shortcut around the tax bill, the calculation has just changed considerably.