California Closes 'Montana Loophole' to Combat Luxury Car Tax Evasion
California has enacted a new law, SB 1406, to close the 'Montana Loophole,' a long-standing tax evasion strategy used by luxury car owners. For years, wealthy residents avoided California's high sales and use taxes by registering high-value vehicles like Ferraris and Lamborghinis through shell companies, typically Limited Liability Companies (LLCs), in Montana, which has no statewide sales tax. This allowed owners to save tens of thousands of dollars on vehicles that were primarily driven and stored in California. The new legislation, signed by Governor Gavin Newsom, expands California’s resident criteria for use tax purposes, treating an LLC as a California entity if at least one member is a California resident. The California Department of Tax and Fee Administration can now hold individual members of these shell companies directly liable for unpaid sales taxes, interest, and penalties. The state is also targeting shell companies with no real business purpose, physical location outside California, W-2 emp...
