For decades now, people who want to avoid paying taxes on their vehicles or want to keep their car on the road without a state safety or emissions inspection have turned to out-of-state registration. This process, which is illegal, allows owners to use loopholes in state vehicle registration laws to register and get plates for their cars, even if they don’t live in those states.
If you’re a gearhead, you probably know about the most popular version of this trick, commonly known as the “Montana loophole.” Anyone, no matter where they live, can form a Montana LLC and register cars to that LLC, without paying a lick of tax to their home state (they don’t pay any taxes to Montana, either, since Montana doesn’t charge sales tax on vehicle registrations).
Wealthy individuals have regularly been exploiting this loophole to avoid paying taxes on their extra-pricy exotics. It’s the reason you see so many fancy supercars with Montana plates in places like California. Those aren’t people visiting from Bozeman; they’re almost all Californians who are avoiding paying the state’s 7.5% sales tax and skirting strict emissions tests.
Up until recently, the people who use loopholes like this have faced virtually no consequences. But lately, states have been cracking down. Last year, Utah signed into law a new data-sharing arrangement between Utah and Montana “to locate and assess tens of thousands of Utah tax evaders, with a particular focus on the owners of cars and boats registered in Montana,” according to Bloomberg. Back in July, California’s tax agency identified over 1,500 vehicles that had potentially been improperly registered to Montana to avoid registration fees.
Now, seven months later, California is taking action. And it’s doing so in a big, seven-figure way.
A “Scheme To Avoid The Reporting Of $20 Million” In Purchases
California Attorney General Rob Bonta announced Friday that his office charged 14 people in a 56-count complaint that included conspiracy, filing false sales tax returns, failing to file tax returns, perjury, and money laundering. The state alleges these individuals failed to report $20 million in luxury vehicle purchases, including a BMW X7, a Porsche 911 GT2 RS, a Porsche 918 Spyder, a Lamborghini Urus, a Lamborghini Huracan, a McLaren 765LT, a Ferrari F12 TDF, and a Ferrari SF90, resulting in around $1.8 million in lost tax revenue.
According to the Attorney General’s office, the individuals have, since 2018, schemed “individually and together” to prepare and submit false DMV forms to suggest the vehicles were purchased for use outside of California, even though they were never shipped or driven outside of the state. The complaint itself contains quotes from several text messages between the defendants, one of which seems to depict a defendant admitting that they added “generic signatures” to one of the vehicle’s bill of lading.
Here’s what the AG had to say about all of this:
“When bad actors abuse legal loopholes and submit fraudulent documents to evade their obligations, the California Department of Justice will not stand idly by,” said Attorney General Rob Bonta. “Every dollar of unpaid taxes is a dollar taken from California’s roads, schools, and the vital services our communities rely on. Schemes that defraud the government of millions in taxpayer money will not be tolerated. Today’s announcement should serve as a reminder: If you break the law and engage in fraud and theft, my office will hold you accountable.”
This should be a wake-up call for those who are currently rocking Montana plates on cars that shouldn’t have them. While this is certainly one of the higher-profile cases of tax evasion taken on by California, it certainly isn’t the first, nor will it be the last. According to DMV director Steve Gordon, the California DMV has recovered $2.3 million through 80 investigations of improper registration.
As I mentioned earlier, the California Department of Tax and Fee Administration has a list of over 1,500 potentially fraudulent vehicles registered in Montana to look through. The cars above are just a small handful of that bunch. Something tells me they won’t stop there.
The same is true for people in Utah using the Montana scheme to skirt taxes. According to Bloomberg, supporters of the bill in that state say the data-sharing arrangement could yield up to $100 million in recovered taxes and penalties. That suggests officials are prepared to hand out more than just slaps on wrists.
The steps follow states like Iowa, Illinois, and Massachusetts, which, over the past decade, have cracked down on out-of-state registrations by residents using Montana LLCs. Most recently, Tennessee has very publicly cracked down on YouTuber Cody “WhistlinDiesel” Detwiler’s Montana registrations, arresting him twice.
My suggestion? If you’re legally able to, just register the damn car in your home state. Sure, it makes things cheaper in the short run, but over a long enough period of time, you’ll end up paying in one form or another. At least if you register your car properly to begin with, you won’t end up with a criminal record. For me, that feels a bit nicer than saving a few bucks in registration fees.
Top graphic image: DepositPhotos.com
I’m OK with this. If you can afford a supercar, you can (and should) certainly pay the taxes on one.
This sounds like very wealthy people avoiding paying taxes that average citizens are paying. I’m don’t have any sympathy here. I don’t enjoy paying taxes, but we are taxed less than most developed nations. Of course, being taxed less doesn’t mean we actually pay less as they all have healthcare that we don’t.
The states wouldn’t have this problem if we weren’t being taxed to death in every facet of our lives, we gained our independence on a meager tax increase and now we just accept that it’s totally normal for every transaction to be taxed and then taxed again in perpetuity on items you outright own.
Michigan used to charge registration tax based on vehicle weight, which makes sense, heavier vehicles cause more damage to roads. They have since changed to charge registration fees based on MSRP of vehicle, how in the world does that make sense? So I have to pay more money because I bought a used Suburban as opposed to a brand new mini van?
I live in a “high tax” state. There are people who loudly proclaim that we are taxed too high. One from my neighborhood made a big deal about moving to a low-tax state because they were tired of it. Within a year, they were back because they realized what they get here for their tax dollars.
I agree that charging based on weight makes more sense than MSRP though.
Key word: if. I’m sure we’ve all seen people selling cars because they couldn’t register them in their state, and I’ve actually bought one of those cars (getting the title straightened out was fun). Sure, some of the reasons for blocking registration are valid (blatantly violating emissions standards), but others are simply bureaucratic. There are people in California who want to pay their sales & road taxes but the state of California won’t let them.
The tax cheats are getting what they deserve, but I’m concerned that a bunch of decent people are going to get caught in the crossfire.
Noticed some people are going off topic here. The issue is avoiding taxes. We’re talking about tax cheats who don’t want to contribute, who want everything free. Emissions are another completely different issue.
Joke’s on them, the only reason I’d use the Montana loophole is to drive an imported car that CARB won’t let me register. I’d even be happy to pay the taxes, because they’d be minimal at best.
If you aren’t willing to pay taxes, you don’t deserve to participate in society. It’s the single most selfish thing a person can do besides committing suicide.
You are NOT the only person that matters, evil tax avoiders!!!
That which made you successful and rich, is because of the taxes that created a stable society and country for you to get rich in.
Where I live I get the distinct impression that the Montana plate is often about making a political statement as much as it is about saving a few bucks. It’s basically the rich-man’s equivalent of a “don’t tread on me” bumper sticker.
I just want to register a kei car, dagnabbit. I am happy to pay taxes in NYS, but I am not happy about not being able to legally register a kei car, which causes no harm whatsoever to anyone else.
Good.
Maine has a $10K reward for snitching on people who register cars out of state to avoid paying the annual excise tax. Every state should do at least that. I would save real money registering all of my cars in Florida (where I reside but 3/5ths of my cars do not), but I don’t because the law says I can’t, and given the cars that live in Maine are used in Maine, it’s fair for me to pay my share of the cost of running the place.
I am so sick of people, often ones claiming to be so “patriotic,” doing stuff like this to avoid paying their fair share of taxes. That’s not patriotism. That’s greed.
I had a friend in college (California) whose parents had their Class A motorhome registered in Oregon back in the 70s. It seemed wrong to me at the time and my opinion has only solidified over time.
Sadly, greed makes the world go ’round.
Fortunately for me, not my world.
Leeches on the system. They want everything it provides, but don’t want to pay for it.