A loophole that allows supercar and luxury car owners to register their vehicles in Montana to save on taxes could be endangered because of a new bill in the California legislature.
The workaround costs the Golden State some $20 million a year in lost tax revenue, according to the bill’s sponsor, Jerry McNerney, a Democrat from Pleasanton. Montana has no car registration fees or state sales tax, allowing car buyers to set up shell companies to register cars there and avoid taxes in their home states. The loophole is well-known among car collectors, which is the reason why one often sees Big Sky Country license plates on cars at shows in many places that aren’t Montana.
“The Montana Loophole is widening, with increasing numbers of tax evaders creating bogus shell companies so they can avoid paying sales taxes on Ferraris, Porsches, and pricey RVs, costing California tens of millions in revenue,” McNerney said in a statement.
Some 2,500 vehicles tied to California residents were registered in Montana since 2023, according to the California Department of Tax and Fee Administration, leading to that around $20 million loss in revenue.
McNerney’s bill would target the shell companies used to facilitate the Montana registrations. “SB 1406 would close the Montana Loophole by expanding California’s definition of who is a resident under state use tax law to include a shell company when at least one member of the business is a California resident. SB 1406 would also authorize CDTFA to impose tax liability on the individual members of a shell company,” according to a press release.
It’s unclear what chances the bill has for passage. However, California legislators have considered going after the Montana loophole in the past. The state’s attorney general earlier this year pressed charges in an alleged scheme to avoid taxes related to the sale of supercars. The cars involved included a Porsche 918 Spyder, McLaren Elva, and a Ferrari F12 Tdf.
“SB 1406 will close the Montana Loophole for good and restore much-needed state revenues to fill potholes and make other essential road repairs,” McNerney said.
Facts Only
Actor: Jerry McNerney (Democrat from Pleasanton), California legislators, California Department of Tax and Fee Administration
Action: proposing bill SB 1406 to close the Montana Loophole, pressing charges in an alleged tax evasion scheme
Event: annual loss of $20 million in revenue for California due to Montana Loophole, around 2,500 vehicles tied to California residents registered in Montana since 2023
Timeframe: from 2023 to present
Location: California, Montana
Executive Summary
Full Take
**SKEPTICAL MODE ANALYSIS:**
*Steelman:* The article presents a clear argument for the need to close a loophole that allows California residents to evade state taxes by registering luxury and supercars in Montana through shell companies. The bill, SB 1406, aims to address this issue by expanding the definition of California residents under state use tax law and authorizing the imposition of tax liability on the individual members of these shell companies.
*Pattern Scan:* None detected
*Root Cause:* The loophole is a result of differences in vehicle registration fees and state sales taxes between Montana and California, which incentivizes tax evasion among wealthy car owners.
*Implications:* If passed, SB 1406 could help recover millions in lost revenue for California. However, it may also have unintended consequences such as potential legal challenges or the relocation of shell companies to other states with similar loopholes.
*Bridge Questions:* How effective will SB 1406 be in addressing this issue? Are there alternative solutions to close similar loopholes in other states? What are the ethical implications of wealthy individuals evading state taxes through these means?