Noose Tightens on Montana Loophole

Registering your collector car in a Montana LLC to avoid state sales tax was all fun and games — until now, that is. California is on a mission to stamp out the “Montana Loophole.”

California Attorney General Rob Bonta issued a press release on March 6, 2026, announcing that his office had just filed a 56-count criminal complaint against 14 individuals involving Montana registrations. The felony charges against the defendants involve conspiracy, filing false sales-tax returns, failing to file tax returns, perjury and money laundering.

The charges are serious, and all can lead to significant prison time as well as substantial financial penalties. Bonta claims that over $20m of vehicles and over $1.8m of unpaid taxes are involved. The charges are the result of a combined effort from the Attorney General’s office, the California DMV and the California Department of Tax and Fee Administration (CDTFA).

“Today’s announcement should serve as a reminder,” Bonta says in the release, “If you break the law and engage in fraud and theft, my office will hold you accountable.”

He is grandstanding a bit here, although the message is being delivered loud and clear to those whose Montana-registered cars are parked in their California garages.

More in the works

This investigation is just part of a larger effort. DMV Director Steve Gordon stated, “Since 2023, the DMV has launched over 80 investigations and recovered $2.3 million” in unpaid taxes. The 80 investigations uncovered 601 vehicles that were fraudulently registered. That is an average of $3,827 per car, suggesting that being a small fish is not going to get you a free pass.

CDTFA and DMV issued their own joint press release on the same day. Points of interest include:

They are investigating all California sales made to all Montana purchasers, whether LLCs or individuals.

They have identified close to 500 dealers involved in over 2,500 sales since 2023 to Montana purchasers.

CDTFA has opened more than 400 investigations into high-end automobile purchases and has begun nearly 300 audits of dealers who have made sales to no-tax states: Montana, Alaska, Delaware, New Hampshire and Oregon.

DMV has pursued 81 criminal prosecutions since 2023.

While sales-tax avoidance is the biggest issue, they are also concerned about the lost annual registration revenue, which is substantial in California.

“Always paranoid”

Under California law, a car dealer does not have to collect sales tax when the car is shipped out of state via a licensed common carrier. The dealer is required to keep detailed records of that process, including a copy of a bill of lading showing that the car is being delivered outside California.

The common thread among the 14 defendants in this case involves dealers, transporters and purchasers conspiring to generate paperwork showing that the car was shipped out of state when it was actually released to the purchaser in California. In a reflection of our times, the proof generally came from text messages among the various defendants.

One of the more damning threads concerned a Ferrari: “We need to ship a 488 Pista from San Mateo to Campbell but on the Bill of Lading put it’s going to Montana. Is that doable lol.” The reply: “We just need the paperwork. Don’t even need it picked up.”

Another discussed a 2022 Lamborghini Urus that went from the dealer to the purchaser’s nearby home, but had documentation showing it went to Montana. The transporter texted, “We’ll make it to Montana in about 45 minutes.”

I suspect this California buyer of a 2023 Lamborghini Aventador Ultimae, who was taking advantage of having purchased a second home in Oregon, is going to get the book thrown at him: “70k saved. I can’t believe the registration lasts for 5 years — that’s crazy. Stupid California. Paid 3k to own a 600k car for 5 years — lol, in Cali that’s like 75k for 5 years. Hella dumb. Good we bought the Lake Oswego house.”

Another buyer texted, “Wife not aware of this purchase,” though he really hit the nail on the head when he sent, “I don’t want the state of California to know anything about this car.”

One buyer who was considering the Montana Loophole did a bit of due diligence with the dealer, asking, “Do you have any customers with Montana plates?” “A few,” was the response. “Have they had any issues?” “Not yet. But they are always paranoid, lol.”

Multiple charges

The Attorney General has been creative and thorough in the variety of charges that have been lodged.

As expected, the purchasers are being charged with failure to pay use taxes and file use-tax returns. (When the seller does not charge a sales tax, the buyer becomes obligated to pay an equal amount in use tax.) Failure to file the use-tax returns becomes a felony charge once it is done with the intent to evade the tax and the unpaid use taxes exceed $25,000 within any 12-month period.

The dealers are being charged with failure to file or filing false sales-tax returns. Those charges also become felonies when there is an intent to evade the tax and the uncollected sales taxes exceed $25,000 within any 12-month period.

The dealers, transporters and purchasers are being charged with felony perjury for filing false CDTFA declarations that the cars were delivered outside California.

All of the defendants are being charged with felony conspiracy. A conspiracy is an agreement among two or more people to commit an illegal act, with at least one overt act taken by any one of them in furtherance of the conspiracy.

The dealers are being charged with felony money laundering by accepting checks for the purchase of the cars. That may seem odd, but money laundering is defined as conducting a transaction involving monetary instruments of a value exceeding $5,000 through a financial institution, with the intention of promoting, facilitating or carrying on criminal activity.

The money-laundering charges are the most interesting, not only because they carry substantial criminal penalties, but because they aren’t so obvious. Clearly, there was no criminal act arising from the sales of the cars to the purchasers; those were ordinary commercial transactions. The criminal acts involved the avoidance of the sales taxes on the car sales. To make this money laundering, you have to combine the checks received from the sale with the conduct evading the sales tax. If those two things are seen as separate acts, then money laundering doesn’t fit. The result here should be interesting.

What next?

This prosecution appears to have resulted from investigations that targeted dealers, consistent with what is described in the CDTFA press release. In a way, that is the low-hanging fruit. Dealers are required to maintain records of all their car sales, and specifically all of those made to out-of-state buyers. Auditing their records is an easy way to identify targets for further investigation.

This prosecution also demonstrates that the investigators have lots of resources at their disposal, and they can seize phones and phone records to find damaging proof.

Tax-fraud transactions involving California dealers are just part of the Montana Loophole landscape. There are numerous tax-fraud transactions involving private transactions and Montana LLCs that are more difficult to find because they are isolated and there is no reporting to audit.

But that doesn’t mean individual violators are safe. We live in a time where license-plate readers are ubiquitous. Ask yourself how hard it would be for California officials to isolate all Montana-plated vehicles driven on California roads and check them out. For that matter, every Cars & Coffee or concours could be a treasure trove of leads.

This isn’t limited to California. It’s just that California has the population and car culture that make it the largest consumer of Montana registrations. Other states are also on the same track.

If you are driving your Montana-licensed cars on your home-state roads, you might start thinking about how you are going to gracefully domesticate them. Shannon Robinson, the spokesperson for the CDTFA, advises that its Consumer Use Tax Division can quickly and easily help you determine and pay whatever is owed to California. It can be reached at 916.445.9524. Good luck. 

John Draneas is an attorney in Oregon and has been SCM’s “Legal Files” columnist since 2003. John can be contacted at john@draneaslaw.com. His comments are general in nature and are not intended to substitute for consultation with an attorney.