California Tax Crackdown on Montana Plates Nets $4M, Charges (1)

California recovered $4 million in unpaid taxes and fees from thousands of car owners and dealers, and brought criminal charges against 14 people as part of a crackdown on luxury vehicles plated in Montana to evade state taxes and registration costs, officials announced Friday.

The 57-count complaint, filed by the state Department of Justice Feb. 23 in Superior Court for Sacramento County, accuses the defendants of conspiracy to commit tax evasion, filing false sales tax returns, money laundering, and perjury. The defendants arranged vehicle sales valued at $18.8 million, resulting in $1.6 million in unpaid taxes, prosecutors say.

Text messages featured in the complaint show dealership personnel, shipping agents, and customers boasting about setting up tax-free transactions involving luxury brands including Aston Martin, Ferrari, and Lamborghini.

“70k saved — I can’t believe the registration lasts for 5 years — that’s crazy. Stupid California,” one defendant allegedly wrote to his wife. “Paid 3k to own a 600k car for 5 years — lol in Cali that’s like 75k for 5 years. Hella dumb.”

The indictment comes as the California Department of Tax and Fee Administration and the Department of Motor Vehicles jointly released data Friday describing the state’s three-year enforcement campaign targeting a tax sheltering strategy in which motorists set up Montana limited liability companies to purchase cars, boats, recreational vehicles, and aircraft. Montana has no statewide sales tax and very low vehicle registration and renewal fees, enticing thousands of non-Montana residents to plate their vehicles in the Big Sky state each year.

CDTFA began collecting vehicle sales data in 2023, identifying 500 California dealers that facilitated more than 2,500 sales to customers claiming their vehicles would be used in Montana. Some of the sales were legitimate, but in most cases the investigators found residents purchasing vehicles from California dealerships, registering them in Montana, and driving on California roads. The agency used the sales data to open 490 cases linked to 300 dealerships, and issued tax assessments of $2.4 million. To date, CDTFA has recovered $1.7 million from drivers and dealers.

Setting up LLCs in Montana is easy and cheap, thanks to a cottage industry of more than 200 registered agents that help out-of-state drivers take advantage of the state’s lenient tax and registration rules. Agents offer to manage all title, registration, and plating duties for as little as $1,000.

Closing the so-called Montana loophole, which erodes $10 million from the tax base annually, is a major priority that will “protect the integrity of California’s tax system,” CDTFA Director Trista Gonzalez said.

The DMV, which has separate enforcement authorities, launched 81 criminal investigations since 2023. The agency identified 601 fraudulently registered vehicles and recovered $2.3 million in taxes and fees owed to the state.

Tax Base Erosion

An analysis by Bloomberg Tax last year revealed 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. After California, at least four more states are conducting enforcement initiatives addressing Montana LLCs.

CDTFA released a map of cities where the bulk of the loophole transactions transpired. Much of the activity is concentrated in the Los Angeles metropolitan area, including tony communities like Beverly Hills, Santa Monica, and Newport Beach. Still, CDTFA found the scheme, “goes across all levels of vehicles rather than just high-end dealerships, and it’s spread throughout California,” said Dennis David, a technical adviser in the agency’s field operations division.

While most of the investigations and audits have focused on Montana transactions, David said his agency is also reviewing sales and registrations in the four other states without sales tax—Alaska, Delaware, New Hampshire, and Oregon.

California requires residents to pay all applicable sales taxes and registration fees after purchasing a vehicle for use in the state. A quirk in state law allows residents to avoid the requirement if the vehicle is delivered, used, and stored out of state for at least 12 months, creating complexity for law enforcement. Penalties for noncompliance can result in payment of the taxes due, plus 50% of the unpaid liability.

Out-Of-State Deliveries

The CDTFA’s investigation revealed large numbers of dealers violating the requirement for out-of-state delivery of Montana-registered vehicles. In some cases, investigators found California dealers filing sham shipping and delivery documents and permitting customers to drive off their lots with Montana license plates. In December 2024, CDTFA issued guidance warning dealers that they would be liable for any unpaid taxes if they fail to provide proper documentation.

The California New Car Dealers Association has been highlighting the “Montana LLC problem” in messaging to its membership for two years, said association president Brian Maas.

“We tell them don’t fall victim of this because ultimately CDTFA is going to come after you,” Maas said in an interview. “You are the sales tax collecting entity and they aren’t going to have a sense of humor about some one-page pitch that someone gave you from the internet.”

Additional scrutiny from the state is driving some owners to seek shelter in out-of-state storage facilities that facilitate delivery, sales, and registration requirements of California law. Those include companies like Auto Concierge, which operates several storage and maintenance facilities in Southern California, but also three facilities in Montana with space for 500 vehicles.

“The state is definitely cracking down—100 percent,” said Auto Concierge president Scott Elrod. “For people that want to play by the rules, we can walk people through that procedure and within the parameters the state has established. We take geo-tagged time-stamped photos of these vehicles on a monthly basis because our clients are getting audited and they are asking for the documents.”