The ‘Big Money Show’ examines blue state tax policies as the wealthy move to lower tax states.
As California faces an exodus of billions, state officials continue to target wealthy individuals, and pressure people who register luxury vehicles out of state to avoid California taxes and registration fees.
Known as the “Montana Loophole,” this practice involves California residents purchasing and registering luxury vehicles through a Montana-based limited liability company, LLC, because Montana has no state sales tax and has much lower registration fees than the Golden State.
Montana allows foreign owners to purchase and register vehicles on paper, even when the vehicles are primarily used in another state, according to the California Department of Taxation and Financial Administration (CDTFA).
On March 6, the CDTFA and the DMV announced that they had opened more than 400 investigations into luxury car buyers and begun audits of nearly 300 dealers in an effort to recover millions in lost money.
California AG Rob Bonta announced charges against more than a dozen citizens involved in tax evasion schemes involving the purchase of luxury vehicles registered out of state. (Vivien Killilea/Getty Images for Runners vs. Cancer / Getty Images)
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The state agency estimates that starting in 2023, the estimated 2,500,500 sales at California dealerships to customers who claim to use the car in Montana will cost the state more than $10 million a year in lost revenue.
California Attorney General Rob Bonta’s office also announced charges against 14 people in the Bay Area in an alleged tax evasion scheme involving more than $20 million in luxury cars registered out of state. According to Bonta’s office, none of these vehicles, including McLarens, Porsches and Ferraris, were exported or used outside of California, and the defendants allegedly evaded more than $1.8 million in federal taxes.
“CDTFA is working to close this hole that is eroding California’s revenue base,” California Department of Taxation and Fiscal Management Director Trista Gonzalez said in a press release. “Our department identifies questionable transactions through state cooperation to protect the integrity of California’s tax system while ensuring that taxes are paid to support our schools, roads, public safety, and essential services that all Californians rely on.”
The California state capitol building on California’s National Lawyers Day on March 13, 2024, in Sacramento, California. (Arturo Holmes/Getty Images for the National Urban League / Getty Images)
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Under state law, residents owe California sales tax on vehicles that have not been used and have been stored for at least 12 months, according to the CDTFA. Those who try to avoid these taxes can face significant penalties, including up to 50% of the tax due.
In December 2024, the state agency sent a warning letter to California car dealers about the tax evasion scheme, saying they could be charged with tax if they failed to keep the proper shipping and delivery documents or if they did not actually take the vehicle out of the state.
“We’re talking about really big, high selling prices for these vehicles. So uncovering even a few of them makes a big, big impact on our revenue for our state that provides important services to the people of California,” CDTFA’s Shannon Robinson told the LA Times in a report published Friday.
Ferrari Testarossa 849 (Ferrari)
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The tax enforcement comes as California’s wealthiest are reportedly fleeing the state over concerns about a wealth tax that would levy a 5% tax on the net worth of residents over $1 billion.
California also faces an estimated $18 billion deficit in 2026 and 2027, according to the Legislative Analyst’s Office.
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