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
You can separate the wheat from the chaff by checking the plates at any cars and coffee in CA. You can afford it or you can’t, damn freeloaders need to get a job and quit whining about how much it costs.
Tax the rich?
Years ago when I moved from Colorado to California, when I went to register my Porsche 914 they charged me $300 in sales tax!?!? I asked them how they can charge me sales tax on something I already own and have owned for years, especially since I didn’t BUY it in California and what it came down to was if you want to drive on our roads – pay up.
So I did…….
Here in Kansas there are no state inspections, but they do charge you a yearly property tax – however it goes down rapidly as your car ages so if you drive 8-10 year old cars like I do, it’s not too bad. On my classic Mini it runs about $50 a year, my 2017 Audi is only about $100 and our 2018 is only about $120.
We have to pay property tax in NC – but it’s the same rate as real estate. So my 2014 Ram truck was 300 last year. Plus I have to pay extra for weighted plates. Also, during Covid when classic car prices shot up, I got huge bills for my 69 Mustang and 76 Jeep – even though they aren’t in nearly the condition of the ones my taxes were based on (NC computes a price, and it’s based on recent sales at dealerships – the most expensive valuation you can get for a car.)
Good. Can I give them a few names?
Can’t wait these arseholes to spend more in legal fees than they saved committing tax fraud
very likely these people are not also paying their fair share of taxes
Good thing court cases like this might allow authorities to get a better peak at the rest of their finances.
Very likely?
I’m a rule follower and don’t condone this type of behavior. However, when you got a guy in the oval office with more than 30 felonies and worse to his record, you have to wonder why bother anymore.
You read my mind: we’ve got a p*d0file in the White House and a war whose purpose is a distraction from that fact – and I’m expected to file my taxes and obey traffic laws.
That aside, at least some of the lesser oligarchs are seeing justice.
Well, for one thing the venn diagram of people who do this (as well as general tax cheats) and the ones who helped get him in that office probably has complete overlap. Keep getting the little fish that feed the big fish and we start getting somewhere.
Meanwhile, I’ve been here nearly 6 months with my 37 y/o Pickup that no one seems to care about. Or do they?? 7% of almost nothing is still something, right?? Right???
Come get me bro?
A friend of mine has a Honda side by side with Montana plates, not to avoid taxes but to allow him to drive it on the road. Montana allows side by sides on the road and my home state does not. Since this looks like a cash grab by the government I expect he will be safe because in this particular case there is no cash to grab.
Uh, I think local laws prevail over laws in another state. Your friend just has not gotten pulled over yet. Plenty of states are starting to allow side-by-sides on the road though.
States practice reciprocity, any vehicle legal to drive on Montana roads is legal to drive on Ohio roads. PA has annual inspections to remain road legal Ohio does not. A car from Ohio that would not pass PA annual inspection is permitted to drive on PA roads. PA’s local laws do not apply to vehicles from other states. Ohio’s local laws do not apply to vehicles from other states. Obviously this only applies to standards of design and maintenance, not how you operate your vehicle such as speed.
I think there’s a difference between annual inspections and the class of vehicle that is not allowed. If it is illegal to drive a golf cart, ATV, etc. on public roads, it is still illegal regardless of where said vehicle is registered.
Question is whether it is explicitly illegal to drive any ATV or whathaveyou on Ohio roads, or if it is merely not possible to register them.
I understand your position but I am telling you my friend did this successfully and has been driving on the road for years.
Not that I condone or approve of this tax-dodging behavior, but there are a ton of states that charge property tax your car annually in addition to the sales tax burden at time of purchase.
I went from VT (with only sales tax) to SC where there is an initial sales tax and an annual property tax on both of my cars.
This accounts to $800-$1000 per year for my vehicles.
I imagine the Montana LLC ‘trick’ avoids this taxation as well as the sales tax. In the greater Charlotte area, every other exotic has Montana tags.
Yes, and all of us poors pay the ~$100 annually or whatever on our $10k commuters. And when we look at buying an upgrade, we have to account for what the yearly property tax burden is. I literally just got my annnual renewal email, and I’ll just pay the damn tax like everyone else.
I have zero sympathy for the asshole who spends 2-5x+ my annual salary on a toy and is then complaining about a yearly tax bill of $10k.
Rich people love to point out how big their tax bill is so you compare that to your own salary/costs and think, “Wow, that’s a lot of money, maybe they’re right to avoid it.” What they don’t want you to do is compare their take-home pay/investement earnings to your yearly take home pay.
I would joyfully pay $100 annually in ‘taxes’, but like I mentioned above, I’m stuck with 8-10x that, depending on what part of the two-year tag renewal cycle we’re in.
That’s for an 10-year-old Explorer and a 12-year-old Mustang. Basically the $10k commuter you mention.
Every year.
I’m definitely not rich and these annual tax bills sting. All I was pointing out above is that it was a shock when I relocated and I’d be rightly pissed paying out $10k a year for something I already paid for. Annual property taxes on vehicles feels punitive.
I don’t condone it, and actually think it’s a violation of many a social contract to even consider it. But I can see the point of those that do use a Montana LLC.
Interesting, I just looked up the SC rates. It looks like it’s ~6%/year depending on county, which is one of the highest vehicle property taxes in the nation. NC is usually less than 1%/year.
That said, SC property taxes are much lower for homes, so I would assume the annual property tax burden for a homeowner is about the same in each state, or still less in SC. It’s a bummer if you’re a renter, but I totally agree about it being a violation of the social contract to try to avoid paying it.
Either way, I still don’t have sympathy for someone who has an exotic and is complaining they have to pay 6% of the value each year. That’s the agreement you made to live in the state. If it costs too much, sell the Ferrari.
The SC property tax on cars is much stranger than just ~6%… there is a bizarre valuation applied to your car, which is then multiplied across your district’s ‘mills’, another bizarre calculation. The SC tag renewal is also part of the calculation every other year, so it’s also inconsistent to track year-over-year.
For 2026, our 2016 Explorer has an ‘assessed value’ of $960. The 2014 Mustang is $410. I don’t know where this assessment comes from, and it seems completely arbitrary and not based in any reality.
I had a motorcycle that was initially valued at ‘$50’ and after 2020 or so, the value increased as did the tax burden. I argued over that with the tax collector for the county and eventually sold the bike in 2023. It’s value had become 7x over three years to ‘$350’. This valuation change in the property (a 1996 motorcycle, btw) went against everything about vehicular valuation in my mind.
Going from 0% annually to 6% annually was definitely rough, car-tax wise.
But we also have the low homeowner property tax that you note as well. VT was over $8k per year, SC is about $2.5k for essentially the same size house and parcel size. The taxation disparity will never undo itself at those rates – even if VT is only $70 a year for cars.
Yeah, having an intentionally opaque taxation strategy without a good way of disputing values is a pain.
NC’s is straightforward – they give you an assessed value and percentage, and everyone (in the county or city, at least) pays that same percentage. And the assessed value is reasonably similar to what I would expect to get if I sold it. I assume there’s a dispute process where you can offer comps, as well, but I haven’t needed to.
In NC some of my values shot up by 10x during Covid. Imagine my shock when my 69 Mustang previously valued at 1k was suddenly 10k. Same with my Jeep CJ-7.
I fucking hate it when people make this argument. Like I give a fuck that the whopping 3% of your $100million take home is $3million. Boo hoo!
Would it sound better if they called it a ‘road tax’ instead of a property tax?
Although basing it on the car’s value seems somewhat arbitrary. In the UK you have to pay a ‘luxury car tax’ if the vehicle cost more than £50,000, but only for the first five years of ownership, after that it’s taxed the same as a cheaper car with the same emissions.
But what other taxes are not collected or collected at a lower rate? I agree there should be a uniform schedule of taxes and not some patchwork. Like in Texas there was no income tax but sales tax was almost 10% in Austin. I was also paying more in the 2000s in property tax on a 900 sq/ft 160k house in Austin than I do now on my 2500sq/ft 600K house in AZ. I pay virtually nothing to keep the cars registered, $408 for the ’22 GTI and personalized plates. I think the rates we pay should cover the specific purposes, South Carolina for example, can’t pay more per mile of road maintenance than Vermont, so what are the extra fees used for?
Not sure if I’m explaining this right, but I guess short answer is: one would hope the taxes are collected based on their use and not just as an easier way to extract money.
Texas property taxes, if you’re lucky enough to part of the landlord class in Texas, more than offset any other non-taxes they always boast of.
No, you don’t want that. There’s a reason that different places have different taxes, and that’s because they have different needs and associated costs, and different sources of revenue.
If Alaska, California, New York, and Nebraska all collected the same taxes, at least one of those states would be getting screwed, but more than likely all of them would hate it. Alaska has tremendous infrastructure costs due to the state’s size and environment, but a relatively tiny population to tax. New York also has a highly stressed road network due to use and weather, but the geography is less extreme, they have much better access to labor and materials, and their large population makes for a large tax base.
Maybe I mean menu? I certainly didn’t mean the same rates. Just don’t make stuff up like sales tax on cars that weren’t purchased in the state.
Here in AZ I pay a registration fee based on the value (I assume) of the car, plus $25 for my custom plate. in Massachusetts I paid registration fees plus yearly “excise tax” based on the original value of the car minus some voodoo. I think this is what drives people crazy, because it feels like nickel and diming.
The area in SC where I live collects a 8% sales tax, too. 1% of that is county and a ‘special district’ tax of 1% (i.e. double-digit % growth in the area necessitates collecting more tax money to support it).
This is in addition to the SC house/vehicle property tax as well as SC state income taxes I pay annually.
Roads in SC, despite their bad reputation, are STELLAR compared to Vermont (where frost and studded tires decimate pavement).
However – all things told, I still suffer a lesser tax burden in SC than I did in VT.
“special district tax” oh, what makes it so special? lol I think that’s kinda what Austin did.
When toll roads started going in around Austin a bunch of coworkers started complaining. They all lived out of the county they didn’t like my solution of moving into Austin, and avoiding tolls in exchange for 2X property taxes.
I live in an unincorporated town, and the 1% is coming from sales tax in that not-a-town area and supposedly going back to support infrastructure updates to manage the explosive growth.
The county is collecting this revenue and the not-a-town seems to not-be-getting much of it.
Charlotte is also sucking at the teat of toll roads – but at least these are not ‘mandatory tolls’ but ‘luxury tolls’. In other words, you’re paying a toll to avoid waiting in traffic.
At this time, around 2005, it was doubly funny because the road they were converting to toll was pretty much the only road to Freescale, and the toll area ended right where I came in from the surface streets. I think they also added “express roads” like you described, assuming fewer would pay the toll and traffic would be lighter.
As someone who grew up in Montana this irked me for years-from what I could tell 1/3 of the cars on BaT were registered in Flathead County.
I do have some sympathy for owners of classics in CA, I support reasonably strict smog controls but the complete lack of accommodation (even the recently failed Leno’s law could’ve gone further) for the difficulties of keeping classic cars completely smog legal (probably a tiny fraction of vehicles on the road) seems a bit over the top to me.
Yeah, I know of at least one very amateur race car that is registered in Montana for smog reasons. Leno’s law would have helped quite a bit.
I support smog laws. In the ’80s, I did not realize that LA had mountains nearby because of the smog. In San Francisco, there would be a brown low haze seen when looking from one side of the bay to the other. These days, the San Francisco smog seems to impact the central valley.
Yeh even my very conservative parents who lived in CA before I was around will admit that smog in LA was terrible in the ’70s and early ’80s.
I guess the thing I don’t get about the CA laws is it just seems like such a small handful of vehicles getting a pass-the average person isn’t tampering with emissions or driving 25+ year old cars. As someone else posted here their home state exempts cars older than 25 years from emissions testing, this seems eminently reasonable to me.
The fraction of cars in California that are older than 25 years appears to much higher than in most other parts of the country, with a larger emissions impact
Absolutely. In a less than one generation, the population tripled, the number of vehicles quadrupled, and state GDP rose 4x. Implementing pollution controls wasn’t the job and economy killer ‘certain’ people said it would be. We can see the mountains and ocean now.
If it was legal then how is it illegal?
It’s because it wasn’t legal. The whole point of registering vehicles to the LLC is that they were purchased for use by the LLC. Company cars, if you will.
That is why the article quotes from the complaint that DMV forms filed by the accused state that the vehicles were purchased for use outside of California (read: Montana), but the vehicles were never shipped nor driven outside of California. This is why perjury is also one of the charges made.
Yes, we may call it a loophole but it’s not a loophole. It’s tax evasion that some states were/are not prosecuting. Your home state’s new AG is under no obligation to let the stuff the former AG didn’t prioritize continue to slide. Hell, an incumbent AG doesn’t even have to do that with something they thought wasn’t worth pursuing last year.
I actually own part of a legitimate Montana LLC, but it doesn’t seem worth it to register my $3000 BMW there.
I have friends in the pharmaceutical industry, and the largest pharma company in the world had plans to “move” its official headquarters to Ireland to dodge taxes. Thankfully, they were shamed into not doing it, but these things happen all the time.
Above my pay grade. I just pay my fair share (or more), and try to make an honest living.
Lots of large companies register their European headquarters in Ireland for cheaper taxes, I’m surprised this pharma company didn’t join Apple, Microsoft, Google etc.
Of course, they can go further, When you buy something from Amazon in Europe you pay Amazon Luxembourg (where they have even lower corporate taxes), and that money is transferred back to the US as ‘licensing fees’ for the right to use the Amazon name etc. These fees don’t incur taxes on the US end, and can be offset against taxes in the EU. It’s a win/win. Well, it is for Jeff, everyone else loses out.
More details
All the first world economies need a unified tax treatment to prevent these abuses.
In October 2021, more than 130 member international jurisdictions agreed to an outline for new tax rules, but not enough has been implemented.
Sounds like Tesla selling fuel credits all over again. Subverting the system in an obvious manner, and the politicians don’t care. It is all performative legislation with no intent to improve things.
Any impartial reviewer can see through all of these schemes, but ‘legally’ they are allowed. What a bunch of crap leadership.
I have a wealthy family member that likes to complain that he pays over six figures in taxes every year. It seems like a ton of money being “taken” by the government (it’s more than my gross salary), until you realize his take home pay is still more than double that amount. And he’s in the tax bracket where you drive a new F150 and Odyssey, not the one where you’re buying 7 figure supercars.
I’m sick of whiny rich people claiming they’re being unfairly treated by the system that enables them to gather so much wealth in the first place, especially now that their greed is leading to the breakdown of that system.
Where do they think the money that paves the roads they drive on comes from? Or the roads that their businesses use? Or the law enforcement and justice system that (should) uphold the rule of law so they don’t have to fight off armed mobs taking their shit? Or the many systems in place to educate and keep their workers healthy enough to show up every day?
If you use or gain benefit from systems and services without making any contribution to their existence despite being easily financially capable of doing so, you’re a parasite. End of story
I don’t know if it’s still true, but there used to be a lot of Ohio registrations driving around KY because of taxes and plate fees. I know my aunt in northern KY used her sister’s address in Ohio for years.
Once again people with the ways and means are cheating the system. Greedy bastards….
They should confiscate and crush the cars, too. Stop breaking the law, asshole!
Why stop here? How about some whipping? Tar&feathering?
Your ideas violate the eighth amendment, mine don’t.
No, that would be cruel. And unusual. Alternatively, confiscate those cars and award them to dues-paying Autopian members like us!
I hope they get my cheapskate ex-boss who was so frickin cheap he used this loophole to register his 30yo Chevy Venture.
You suck, Peter.
I have never seen a Montana plate. Texas, on the other hand…
I see a few around in our not-very-wealthy area. NY sales tax is 8%, which can add up pretty quickly. But it makes sense that people in California use it to avoid smog requirements.
I see tons of Texas plates, but I live in the Austin area. Where outside of Texas are you seeing Texas plates on the regular? Just curious, because Texas does have license registration fees that are based on the vehicle’s value. Granted, it sounds like our rates are quite a bit lower that some of the other areas being discussed.
I have been seeing lots of Florida, California, and Michigan plates over the past few years, but I assume that is just all the folks moving here. Seems like freaking everyone is moving here. Please stop!
Illinois. Peoria area specifically. And consistently seeing the same pickups with Texas plates.
The entire tax system is structured to let these effers keep as much of their millions as possible, yet they still feel entitled to MORE, even on their 6-figure exotic toy cars. And they’ll bitch and they’ll whine and they’ll pontificate about tyranny over this, and then point to the 12% federal tax rate on low income earners and say “those people aren’t contributing their share!”
Don’t steal, the government hates competition. Tax evasion gets the tax collectors angry.
That said if I had the money I’d try the Montana dodge to register Kei cars in Oregon. Since we have no sales tax I doubt they spend much time on that.
“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.
But Rob your office did, for over a decade. What took you so long? It’s not like any of this has been a tightly held secret. It was even a story on the old lighting site:
https://www.jalopnik.com/the-pitfalls-of-the-montana-license-plate-scam-1711216059/
A few things. Rob Bonta was not AG in 2015 and just because this prosecution made the news doesn’t mean it is the first one to happen. Out of State registrations are often handled with warnings and citations rather than full on indictments and criminal prosecutions. You can look up some numbers, and you’ll find that the State, rather reasonably, would prefer to get you in compliance in than charge you with a crime. If you click on the actual indictment link in the article and you’ll see that the conspiracy was the big issue that brought the charges, not simply the out of state plates.
But the OFFICE of CAG did exist in 2015. It’s existed as long as this *workaround* has been going on. And it’s telling that by 2015 even the old lighting site wrote about it, even going so far as to give links to websites that specialized in the procedure so there were clearly a lot of people doing it, even then. And that lighting site story, written by an attorney outright calls it a scam and points out the companies promoting it even hint that its illegal. So it’s likely the conspiracy element was as prosecutable then as it is now.
If there were prosecutions before why are they not mentioned? Why wasn’t this entire process shut down a decade ago?
Believe it or not, after a crime has been committed once, it can be committed again, by the same person, or by a different person.
Which is the point. This crime was committed many, many different times by many, many different people, so often it was discussed openly in car blogs and with publically visible pay for service websites to facilitate the process.
So why did the crackdown take so damn long?
What exactly do you want them to do? Ban every car from Montana?
I want them to have been doing exactly what they are doing now a decade ago. To say “The California Department of Justice will not stand idly by” when they have been doing that for ten years only highlights their sluggishness.
Things aren’t that black and white. Just because it doesn’t make the news, doesn’t mean it hasn’t happened. In this case it did get publicity, because it wasn’t an individual registering their car to some LLC they started in Montana, it was a crime ring charged with conspiracy with all the supporting evidence needed to prosecute.
Not according to Brian as stated in the text of this very story:
“Up until recently, the people who use loopholes like this have faced virtually no consequences.”
Buying a new exotic and registering out of state, that’s just fraud and should be punished.
Buying an old hooptie and finding any way to make it legal…
The motivations are different but, unfortunately, this is still fraud and illegal.
How fuckin spoiled do you have to be to save three or four figures on taxes (maybe five figures, if we’re talking initial sales tax) on your six figure exotic?
That X7 registration just made me sad. I know it’s expensive as all hell, but really? It couldn’t even be some kind of badass M car or something?
Ever heard of the Empty Box Scam? In the 80’s NYC had a 8.25% sales tax on luxury goods. Wealthy people such as Leona Helmsley and Henry Kissinger (as well as the current head of the Republican administration) would buy luxury goods and have the empty boxes shipped to an out-of-state address to avoid the tax. Several stores were prosecuted for falsifying business records and tax evasion, some owners faced jail time. The customers also committed tax fraud with a potential of 5 years in prison, but none of them were prosecuted. If you can afford to shop at Bulgari or Cartier you can afford to pay the taxes you owe.
This was why when I was a kid anything we bought at a department store in NYC was shipped to our house in the suburbs so we didn’t pay extra tax. Mom also liked shopping in New Jersey to beat tax.
The cost and effort to setup the LLC is what you need to weigh against what you’re going to pay in taxes/reg. Once you’ve done it to skirt $12k on your Porsche, everything else is a bonus. Use it for your 2002 Cavalier or whatever and keep your $170.