Wealthy California luxury car owners who wanted to avoid taxes took advantage of a loophole that allowed them to register their cars in other states, with Montana being a particularly popular place to seek registration. In response, California authorities are launching a new crackdown targeting the vulnerability. The state’s Department of Revenue and Tax Administration announced that it is reviewing every sale made by California dealers to limited liability companies and private customers since 2023 that resulted in a vehicle receiving a Montana license plate.
DMV Director Steve Gordon said in a statement that he would “encourage all Californians to do the right thing,” and CDTFA Director Trista Gonzalez noted that the state relies on sales taxes “to support our schools, roads, public safety and the essential services that all Californians depend on.” To date, the DMV has opened 81 criminal investigations into the practice, including recent felony charges against 14 defendants. The complaint includes 57 counts, including perjury, filing false sales tax returns and conspiracy to evade taxes.
In addition to luxury cars, RVs were reportedly purchased using the “Montana loophole.” The loophole involves buyers setting up an LLC in Montana, allowing them to hold car titles within the state. They then falsely claimed the car was being shipped from California to Montana, which does not have a statewide sales tax. According to the CDTFA, this practice currently means California loses approximately $10 million in sales tax revenue annually.
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Beverly Hills dealers especially like Montana holes
The Montana plate is integrated with other American plates – Artas/Getty Images
Dealers in certain areas of California took advantage of the loophole particularly frequently, with the CDTFA reporting the highest number of new car registrations among Montana buyers in Beverly Hills. Costa Mesa is close behind, while Van Nuys also has particularly high enrollment in Montana.
Montana isn’t the only state allegedly used by shady dealers to evade taxes: Oregon, Delaware, New Hampshire and Alaska have also been reportedly used for similar tax avoidance schemes because they are also among the cheapest places to register a new car. Investigators said they are also seeking to recover unpaid taxes from buyers who fraudulently registered cars in those states.
While driving in California with a Montana license plate won’t make you a magnet for police, any California resident who has recently purchased a new car with Montana license plates should pay attention to the latest enforcement initiatives. Car owners who evade the tax can be slapped with hefty fines, and dealers who take advantage of this loophole are expected to file more lawsuits in the near future.
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Read the original article on SlashGear.
