The August 2024 “Legal Files” about California cracking down on Montana-registered cars produced quite a response. We received more letters about this topic than for any other recent column, so we’re revisiting the subject this month. The surprise was that almost all the letter-writers were unsympathetic to this practice. Many were highly critical of what they perceive as a scam being perpetrated by scofflaw owners.
Here is a sample of the responses, edited for brevity:
Enjoyed your most recent SCM column on Montana plates. It’s an issue in many states — at least the high-tax ones. Here in Connecticut, our registration fees run about $150 and sales tax is 6.35% (7.75% for vehicles over $50,000, which these days covers a lot of cars). But we also have personal property tax on vehicles, which they charge you each year. (It does go down as the car depreciates and there’s a wonderful near-exemption for classic cars.) On the other hand, it varies from town to town and the same year, make and model may be taxed at two to three times in one city what it is in another municipality. A few years ago, the state started hassling “snowbirds.” Our DMV got itchy about the lost revenue from people sporting Florida plates here and wanted people to re-register their cars in Connecticut when they were going to be in-state for more than 30 days. — David Moyer
Great article! I heard about this “tax dodge” in a casual conversation with someone last year. Seemed sketchy to me. I’m also wondering what the possible insurance ramifications could be should an unfortunate accident befall an owner of a car with such a registration. Are they unwittingly giving the issuer an opportunity to decline to honor a claim? Especially if there are multimillion-dollar personal-injury claims, etc.? — Don DiMonda
Read the article in SCM. Interesting. Can you give advice as to getting in front of one of these situations? — Brian McKune
I was thrilled to see your magazine finally print something on the illegal Montana LLC tax scam that’s been going on for years. I worked on this illegal scam for quite some time in another state. Good work by that investigator to just check out the repair shop. Every Montana plate you see on a collector car is fraud. I’ve always been so annoyed to see major magazines that continue to allow the advertisements for promoting this fraudulent tax evasion. But, wait… Sports Car Market has always been one of them. Disappointed to see you still have an active ad from a law office in Montana at the bottom of p. 143. — Steve Giannangelo
Legality recap
Just so that everyone is clear on the law, there is no legal way to register your car in Montana and drive it in your home state. Those who do that are breaking the laws of their home state and can become subject to civil penalties and even criminal liability.
In these situations, you have to consider the laws of three states: Montana, the state where the car is driven, and your home state. Registering your car in a Montana LLC is perfectly legal in Montana. If you drive the car in any state other than your home state, you are most likely not violating the laws of that state either. But once you bring the car into your home state, its laws typically require you to register the car there. It’s your home state’s laws that are being broken, as was the case in the August story.
California has a very useful sales tax exception. If a California resident registers the car in a Montana LLC and keeps it outside California for at least 12 months of use, then the car can be brought into California and registered there without having to pay sales or use tax. That strategy is a perfectly legitimate way to avoid the California sales tax, and many of my clients have done just that. Other states may or may not have similar exceptions — you have to check.
Obviously, there are significant costs associated with keeping the car in another state for 12 months. It’s a smart play with a valuable car; not so much with a modest collector car or a daily driver.
Insurance issues
Insurance is a highly regulated industry, and insurance policies must be pre-approved by the insurance regulators in each state where they are issued. Insurance companies generally maintain 50 individual-state-compliant versions of each of their policies. When you register your car in Montana but drive it in your home state, which state’s approved policy do you get?
My insurance contacts tell me that they usually issue a Montana policy in these circumstances since that is where the car is registered. If the car is routinely driven elsewhere, and a claim arises, will you have coverage issues? Probably not, as the basic coverage provisions are pretty much the same in all states. What can differ are the minor portions of the policy, such as window breakage, roadside assistance, rental-car coverage, and the like. You will get the Montana version of those coverages, which may or may not be a critical difference.
But what is really important to the insurance company is pricing. There aren’t very many people in Montana for its size, so driving there is a lot less risky than driving in, say, Los Angeles. The insurance company is going to want to charge higher premiums to reflect their actual risk. If you mislead it about where the car will be driven, it may not be happy with you after a claim arises.
On a more subtle point, about a quarter of the states — California included — require insurance companies to electronically report every time they write or cancel a policy on a car in the state. The reason is to help the states makes sure people carry insurance. If your carrier issues a home-state policy because that is where your Montana-registered car will be driven, they may report the issuance of the policy to your home state. When that does not correlate with the registration database, they might ask you about it.
Finally, some of the consumer-oriented insurance companies limit their business to individuals and will not insure cars owned by an LLC. If you use one of these companies and just tell them you own the car personally, you could have coverage problems. The car belongs to your LLC, which is not an insured party. The policy was issued to you, but you don’t own the car, so you may not have an insurable interest. That possibility could be really scary if you have a major claim.
Much misinformation
I contacted my friend John Bennett, the Montana lawyer who has co-authored with me before, to get his take on this issue. After all, it is his ad in SCM to which one of the letters refers.
Bennett takes great pains to explain the law to his clients, detailing what they can and can’t legally do. In his view, “The Montana LLC strategy has been popularized by non-attorneys in Montana offering Montana titling services to residents of other states and not telling them the whole story. As a result, there is a lot of misinformation out there.”
A quick internet search will turn up several outfits that will help you form a Montana LLC to own your cars and to make use of the “many tax advantages” that Montana offers. Bennett and I both make sure our clients understand the rules and what they are and are not allowed to do.
Are you worried?
If you are keeping a Montana-registered car in your home state, there are some precautions you can take. Of course, seeking good legal help is a must, but you should also consider the following. First, stop driving the car. Definitely stay away from Cars & Coffees and similar events. Think about it: If you were a state investigator looking for registration cheaters, where would you look?
You might want to send the car to another state, especially if you live in California or another state that has a waiting period. Then after the commensurate time passes, bring the car into the state and register it.
Regardless, you should consider finding a way to register the car in your state. There may not be an inexpensive option for this, and you do have to be ready with a good explanation as to why it took you so long to register it. But this is the only sure-fire solution.
Or just keep driving and hope for the best. ♦
John Draneas is an attorney in Oregon and has been SCM’s “Legal Files” columnist since 2003. His recently published book The Best of Legal Files can be purchased on our website. John can be contacted at [email protected]. His comments are general in nature and are not intended to substitute for consultation with an attorney.
HI John,
I’m a call collector based in california. (I have 2 cars, one is just old but worthless and the 2nd has some value.) I just ran across your article today after searching and having my interest peaked from a facebook video on registering your car in montana to have a never expire registration. I’ve had both of my cars for 10+ years each. They are fully paid off. So for a variation of these ?, my buddy lives in GA. We both have diesel trucks. His registration is < $100/year and mine if approximately $400/year. Does the same rule apply for a regularly driven vehicle that it has to be registered in the state in the first 90 days?
I imported a fully restored Lancia Fulvia Sport Zagato from the Netherlands last year. My local DMV office rejected all the paperwork I submitted for registration and sent me to the Foreign Car Title Unit at DMV HQ in Trenton, NJ. I completed the forms and sent in my check for sales tax and thought I was on my way. I was surprised when my check was returned with a letter insisting I obtain the original title from a gentleman in Italy who owned the car in 1982. Calls to the Foreign Car Title Unit were met with a very unhelpful response and comments that I would never be able to obtain a title or drive the car in NJ without the 1982 title – something that the European seller could solve nor could the overseas carrier whose paperwork usually does the trick with registration of cars they ship to the US. The solution would be to petition the court for relief requiring an attorney, considerable time and a pretty iffy possibility of success I was advised. So, I turned to John Bennett’s firm and his very capable hands and am now driving my car here in NJ with Montana plates. I carry the letter from the Foreign Car Title Unit with the returned check in my glovebox in case I am stopped to, hopefully, support my tale of woe and need for Montana plates and appeal for leniency. You might ask why I don’t now register the car here in NJ with a clean Montana title? My fear is the Foreign Car Title Unit has my VIN and the very challenging exchanges I had with the Foreign Car Title Unit give me pause that I will somehow lose the ability to drive my car with Montana plates and still be unable to register it in NJ. I’m not evading taxes and not completely comfortable with feeling that I am somehow a “scofflaw” but I made considerable effort to follow correct procedures, and I did send a check but became stuck in a pretty unreasonable bureaucratic double bind that prevented me from driving my car for several months. Anyway, I drive it now but will avoid cars and coffee events per your advice.
All the best,
Tom