California officially closes the famous Montana license plate loophole used by luxury car owners and this is how

Luxury car owners in California have long had a clever loophole to try to avoid hefty vehicle taxes, and it all came down to whether their license plate came from Montana or not.

By registering expensive cars through companies set up in Montana, some drivers were able to sidestep taxes they would otherwise owe in their home state.

But that trick has now become much harder to pull off after California introduced a new law targeting the practice.

And for anyone hoping to use the same method to save money on their next supercar, there is a major catch.

California has officially shut down the Montana license plate loophole

California Governor Gavin Newsom signed Senate Bill 1406 into law on September 30, 2026, tightening the rules around businesses used to register cars outside the state.

The legislation targets the so-called Montana license plate loophole, a method that has become particularly popular among owners of high-end cars, from Ferraris and Lamborghinis to Porsches.

Montana has no statewide sales tax, making it an attractive place to register a vehicle without paying the sales tax that would normally apply in states such as California, with Californian license plates for example.

The trick often involved creating a limited liability company (LLC) in Montana and purchasing a vehicle through that business.

Instead of registering a supercar directly in California, its owner could register it through the Montana company and bring it back to the Golden State.

However, California law already required residents to pay applicable use tax on vehicles brought into the state, regardless of where they were registered.

The problem was that some people allegedly used shell companies and misleading paperwork to get around those requirements.

The new law changes the rules for shell companies

The biggest change under SB 1406 is how California determines whether a business registering a vehicle elsewhere should be treated as a California resident for tax purposes.

Previously, the rules included a test based on whether more than half of a business was located outside California, which could create an opening for certain companies to register vehicles in any other state in the US.

The new legislation expands the definition of businesses covered by the rules to include partnerships, limited partnerships and limited liability partnerships, alongside corporations and LLCs.

More importantly, a shell company can now be presumed to be a California resident if even one shareholder, partner, member or beneficial owner is a California resident.

That makes it much harder for someone living in California to rely on a Montana company to register a luxury car while avoiding the state’s tax obligations.

The legislation also allows certain people associated with a shell company, including its officers, managers, partners, beneficial owners and members, to be held personally liable for unpaid taxes, interest and penalties.

In other words, putting a business name between yourself and an expensive car may no longer offer the protection some owners hoped it would.

Luxury car owners could face a costly bill

California has already been investigating alleged misuse of the Montana registration system, with authorities examining suspicious vehicle sales and the paperwork used to claim that cars were purchased for use outside the state.

In March 2026, the California Department of Tax and Fee Administration said it and the Department of Motor Vehicles had identified nearly 500 dealers involved in more than 2,500 sales since 2023 to customers claiming to use vehicles in Montana.

Officials said the suspected loophole scheme was costing California more than $10 million annually at that time.

The state has also warned that people who fraudulently claim their vehicles are being used outside California can face substantial financial penalties, including a penalty equal to 50 percent of the tax on a vehicle’s purchase price.

That could mean a very painful bill for someone who has used the arrangement to register a six- or seven-figure supercar.

The new law does not mean every Montana-registered vehicle is illegal, nor does it automatically make every out-of-state business arrangement a tax dodge.

Genuine businesses and legitimate out-of-state vehicle use are different situations.

But for California residents who have been relying on shell companies to avoid paying taxes on cars they keep in the state, the rules have changed considerably.

The Montana plate might still look the part on a Lamborghini or Ferrari, but it is no longer the easy tax workaround some luxury car owners hoped it would be.