California is cracking down on wealthy residents who register luxury vehicles out of state to dodge taxes and registration fees. The practice, known as the “Montana Loophole,” involves forming a Montana-based limited liability company to title expensive cars, since Montana has no statewide sales tax and significantly lower registration fees than California.
The state’s Department of Tax and Fee Administration and the DMV have opened more than 400 investigations into high-end vehicle buyers and launched nearly 300 dealership audits to recover lost revenue. Officials estimate that roughly 2,500 sales across nearly 500 dealerships have cost the state over $10 million annually since 2023.
California Attorney General Rob Bonta’s office announced charges against 14 Bay Area individuals in a suspected tax evasion scheme involving more than $20 million worth of luxury vehicles. The cars — including McLarens, Porsches, and Ferraris — never left the state. The defendants allegedly avoided more than $1.8 million in taxes.
Under state law, residents must owe California sales tax on vehicles unless they are first used and kept out of state for at least 12 months. Violators can face penalties of up to 50% of the tax owed. The state sent warning letters to dealers in December 2024, alerting them that they could be held liable for unpaid taxes if proper shipping documentation is not maintained.
Montana allows out-of-state owners to title vehicles on paper, even when cars are primarily used elsewhere.
The crackdown comes as California faces broader revenue challenges linked to a wealthy exodus. The state has tightened its audit scrutiny on high-net-worth individuals, with officials warning that loopholes that benefit a small group ultimately shift costs onto working Californians who pay sales, property, and income taxes daily.