The ‘Montana loophole’ is one of the most well-known tactics in the US for avoiding hefty tax payments when registering high-value cars, and is the reason it’s not unusual to see ultra-rare exotica cruising around places like Beverly Hills while wearing plates from the third-least densely populated state in the US.
However, California isn’t happy about the loophole, which takes advantage of Montana’s unusually relaxed approach to sales and registration tax, and has just announced charges against 14 individuals alleged to be part of a scheme using the tactic to avoid over $1.8 million worth of taxes on rare exotic cars.
What is the Montana Loophole?
Every state has its own tax laws, and that includes vehicle sales and registration tax. Montana has some of the most attractive rules in this regard: the state charges no sales tax and no vehicle excise taxes either. To take advantage of this as a private buyer, you have to be a Montana resident, but there’s long been a workaround for people from other parts of the country: establishing a limited liability company (LLC) that’s based in the state, and registering the car to that LLC.
This method itself is perfectly within the bounds of the law. Legal issues arise because many states require that cars kept and used there for more than a certain period of time are registered in that state, although enforcement of this has been sporadic.
Common in Cali
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California is one of the most common places to see Montana-registered exotics, thanks to its higher proportion of wealthy residents as well as its high taxes – the base rate of registration tax in the state is 7.75% of a car’s value, but further district taxes can push it above 10% in some areas.
As a result, following initial action taken by the state last year, the California Department of Tax and Fee Administration (CDTFA), as well as the state’s DMV, announced a further crackdown on Friday. It’s identified over 2,500 sales from around 500 dealers since 2023 alone that took advantage of the Montana loophole. Unsurprisingly, ultra-wealthy Beverly Hills is at the epicentre, with 416 sales allegedly involved in the investigation.
14 Already Charged
McLaren
On the same day, California Attorney General Rob Bonta announced that the state is bringing charges against 14 people in relation to avoiding taxes on high-end cars. The defendants allegedly “prepared and submitted false CDTFA forms [and] DMV forms… indicating that vehicles were purchased for use outside California,” but which were “delivered, driven and stored within the state.”
The vehicles involved are said to total upwards of $20 million in value, with over $1.8 million in taxes avoided through the scheme. Unsurprisingly, there’s some serious metal involved: the Attorney General’s press release makes mention of a McLaren Elva worth $1.8 million, a Porsche 918 Spyder worth $1.5 million and a $1.26 million Ferrari F12tdf.
It remains to be seen whether the crackdown will have any noticeable effect on the proliferation of Montana-plated exotics, but in the short term at least, it looks as if wealthy Californians might need to use a little more caution in registering their cars.
