Brief
Gov. Gavin Newsom signs law to end Montana LLC loophole for luxury‑car owners
The new law expands California’s tax rules to treat out‑of‑state shell companies as California residents if any owner lives in the state.
By Felo News Desk · Published
California Governor Gavin Newsom signed Senate Bill 1406 on Sept. 30, ending a tax strategy that let some luxury‑car owners avoid state sales tax by registering vehicles through Montana limited‑liability companies. The measure, which passed the Assembly 59‑19 and the Senate 31‑8, expands the definition of a California‑resident shell company.
What happened
The loophole relied on Montana’s lack of a statewide vehicle sales tax and permissive LLC formation rules. Owners could create a Montana company, title an expensive car through it, register the vehicle in Montana, and then drive the car home to California, avoiding up to tens of thousands of dollars in tax. A criminal complaint cited a $600,000 Lamborghini owner who claimed a $70,000 saving and paid only $3,000 for a five‑year Montana registration.
What the report adds
The New York Post notes that California officials estimate the practice costs the state about $20 million in lost revenue each year. SB 1406 now treats any shell company with a California‑resident shareholder, partner, member or beneficial owner as a California resident for tax purposes, making owners and officers personally liable for unpaid taxes, interest and penalties.
What was said
State Sen. Jerry McNerney, who introduced the bill and chairs the Senate Revenue and Taxation Committee, said the law targets “wealthy tax evaders” who use out‑of‑state companies to buy luxury vehicles and bring them back to California.
How it came about
The legislation follows years of complaints that the Montana‑LLC scheme let affluent Californians sidestep the state’s 7.25 % sales tax. By expanding residency criteria, the law aims to recover the estimated $20 million annually and deter similar tax‑avoidance structures.
Key facts
- Gov. Gavin Newsom signed Senate Bill 1406 on Sept. 30 to close the Montana LLC loophole. (nypost.com)
- The loophole let owners avoid up to $70,000 in California sales tax on luxury vehicles. (nypost.com)
- California estimates the scheme cost the state $20 million in lost tax revenue each year. (nypost.com)
- SB 1406 treats any shell company with a California‑resident owner as a California resident for tax purposes. (nypost.com)
- State Sen. Jerry McNerney said the law targets wealthy tax evaders using out‑of‑state companies. (nypost.com)
Sources
- [1] nypost.com — originally reported as “Gavin Newsom closes ‘Montana-loophole’ as damning texts reveal what luxe car buyers saved on taxes”
