California Finds 1,500 Vehicles Linked to Montana Tax Shelters

California’s tax agency has identified over 1,500 vehicles from 500 dealers that may have been improperly registered in Montana to circumvent California’s sales tax and vehicle registration statutes.

The vehicles flagged by the California Department of Tax and Fee Administration as having been sold to Montana limited liability companies are valued at more than $300 million. The department may impose penalties on both the vehicle owners and the dealerships, department spokesperson Tamma Adamek said.

“All of the dealers we’ve identified have been contacted. Some will voluntarily pay, some will be referred for audit, and some will be referred to our Consumer Use Tax section for further investigation, billing, or collections,” Adamek said in an email.

The transactions were identified during an agency investigation of vehicle registration abuses involving Montana LLCs going back to 2022. Montana LLCs are frequently used as tax shelters by purchasers of luxury cars, boats, recreational vehicles, and planes from non-Montana states. Montana has no statewide sales tax and very low vehicle registration and renewal fees.

Separately, the California Department of Motor Vehicles announced new enforcement totals from its initiative focused on out-of-state registrations. Since June 2023, “the DMV has collected taxes, registration fees and penalties for 71 vehicles improperly registered in other states totaling over $1.9 million,” department spokesman Ronald Ongtoaboc said.

The enforcement announcement in California comes two months after Bloomberg Tax published an extensive examination of Montana LLCs. By one count, there are likely more than 600,000 vehicles registered in Montana but operated in other states, resulting in billions of dollars in lost sales taxes and annual vehicle registration fees for the non-Montana states.

In addition to California, Illinois and Utah have taken steps this year to clamp down on vehicles and vessels registered in Montana.

Illinois Gov. JB Pritzker (D) last month approved a broad revenue bill that permits the state to look through LLC structures to hold the beneficial owners in Illinois responsible for taxes and fees on assets held in those structures. The policy change provides additional legal leverage to the Department of Revenue and the Department of Motor Vehicles to investigate and charge residents placing their vehicles in Montana shell companies.

Utah Gov. Spencer Cox (R) in March signed a law that allows data sharing between the Utah Tax Commission and the state’s Uninsured Motorist Identification Database Program, leading to the creation of a list of names and home addresses of residents who register and plate their cars and boats through Montana LLCs. The data will be used to support an enforcement and penalty program later this year.