California Is Cracking Down On Drivers With Plates From One Specific State

Wealthy Californian luxury car owners looking to avoid taxes have taken advantage of a loophole that allows them to register their cars in other states, with Montana being a particularly popular place to seek registrations. In response, Californian authorities are launching a new crackdown on the loophole. The state’s Department of Tax and Fee Administration has announced that it is examining every sale made by a Californian dealership that resulted in a car being given Montana plates since 2023, both to LLCs and to private customers.

In a statement, the DMV director Steve Gordon said he would “encourage all Californians to do the right thing,” and CDTFA director Trista Gonzalez noted that the state relies on sales tax “to support our schools, roads, public safety, and essential services that all Californians depend on.” So far, the DMV has opened 81 criminal investigations into the practice, including a recent felony complaint against 14 defendants. That complaint included 57 counts, including perjury, filing false sales tax returns, and conspiracy to commit sales tax evasion.

As well as luxury cars, RVs have reportedly been purchased using the “Montana loophole.” The loophole involves buyers setting up LLCs in Montana, allowing them to title the car within the state. They then falsely claim that the car is being shipped from California to Montana, which does not have a statewide sales tax. According to the CDTFA, this practice currently means that California loses out on around $10 million in sales tax revenue every year.

Dealers in certain parts of California have exploited the loophole particularly frequently, with the CDTFA reporting that Beverly Hills saw the highest number of new car registrations with Montana purchasers. Costa Mesa wasn’t far behind, while Van Nuys also saw a particularly high number of Montana registrations.

Montana isn’t the only state that shady dealers have allegedly used to swerve taxes either: Oregon, Delaware, New Hampshire, and Alaska have also reportedly been used for similar avoidance schemes, since they’re also among the cheapest places to register new cars. Investigators have said that they are also looking to recover unpaid taxes from buyers fraudulently registering their cars in these states.

While driving around California in a car with a Montana registration isn’t going to make you a police magnet, any Californian residents who recently bought a new car with Montana license plates should be concerned about the latest enforcement initiative. Owners caught evading taxes can be hit with significant fines, while dealers using the loophole can expect more lawsuits to be filed in the near future.