Brad Hooker (Bloomberg Law): California Fix for Montana Plates Tax Loophole Heads to Newsom
California lawmakers are moving to shut down a tax maneuver that luxury vehicle owners use to avoid paying state taxes.
The Assembly Wednesday approved a bill (SB 1406) by Sen. Jerry McNerney (D) to close what’s known as the “Montana loophole,” where Californians create shell companies in Montana to purchase and register cars, pickups, yachts, and recreational vehicles to bypass sales tax. They then use those vehicles in California. The measure passed the Senate in May.
The bill would allow the California Department of Tax and Fee Administration to apply the state’s use tax to shell companies with at least one Californian as an owner. Individual owners could be held liable for unpaid taxes.
“For years, wealthy tax evaders have avoided paying sales taxes by setting up phony shell companies to buy Ferraris, Lamborghinis and other exotic vehicles in Montana,” McNenery said in a statement on the bill’s passage. “Closing the Montana Loophole will help restore some fairness to our sales tax system by ensuring that everyone pays what they owe.”
The Assembly narrowly approved measure 59-19; it cleared the Senate 31-8. It now heads to Gov. Gavin Newsom (D), who will have until the end of October to sign it.
California is one of several states stepping up efforts to recover revenue lost to Montana plates. McNerney estimated that thousands of California residents have used the maneuver and that it is costing the state more than $20 million annually in lost revenue.
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