California finally plugged the Montana plate loophole. If you have been ducking sales tax by registering your Lamborghini through a shell LLC in Billings, your grace period just ended.
State Bill 1406 became law on September 30, 2026. It rewrites the rules on how California decides whether a business counts as a resident for tax purposes. The short version is that if you live in California and you own part of the company that owns the car, California now considers that company a California resident. That means the car is subject to California sales and use tax, even if the registration says Montana.
How the Old Loophole Worked
California has always taxed vehicles that residents bring into the state, regardless of where they are registered. The wrinkle was in how the state treated vehicles owned by a business. Under the old law, a company only counted as a California resident if more than half of its operations were based in California.
That left a gap. Register a single-purpose LLC in a state with no sales tax, title your six-figure car to that LLC, and park it in your Malibu driveway. Montana became the go-to state because it charges no sales tax on vehicles and has no smog or safety inspections. The state does not ask many questions, and until now California could not reach through the corporate veil to collect.
The arrangement made sense in legitimate cases. A Nevada-based business with a satellite office in California could keep a company vehicle on Nevada plates as long as the bulk of the business stayed in Nevada. But people started abusing it, setting up hollow LLCs with no real business purpose beyond dodging a tax bill.
What Changed
The new law expands the types of business entities subject to the residency test. Partnerships, limited partnerships, and limited liability partnerships now get the same treatment as LLCs and corporations. More important, the law scraps the old fifty-percent test.
Now, if any shareholder, partner, member, or beneficial owner of a shell company is a California resident, the entire company is a California resident. It does not matter if the LLC was formed in Montana or Delaware or the Cayman Islands. If you live in California and your name is on the paperwork, California wants its cut.
The law also makes officers, managers, partners, and members of shell companies personally liable for unpaid taxes, plus interest and penalties. That liability can turn into a criminal matter if the tax stays unpaid. You cannot hide behind the corporate structure anymore.
Who This Hits
This mostly affects people registering high-dollar exotic cars and luxury vehicles. California sales tax runs between seven and ten percent depending on the county. On a four-hundred-thousand-dollar Bugatti, that means a tax bill north of thirty grand. For someone who can afford the car, thirty thousand might not sound like much, but apparently it was enough to justify the hassle of maintaining a fake Montana LLC.
The law does not touch legitimate business arrangements. If you run a real company based outside California and you occasionally bring a company vehicle into the state for work, nothing changes. The target is shell companies set up for the sole purpose of dodging taxes.
Enforcement Is the Question
Passing a law is one thing. Enforcing it is another. California will have to identify shell companies, prove residency, and collect the taxes. That means audits, investigations, and probably a few high-profile cases to send a message.
The state has been cracking down on Montana plates for a while. This law gives tax authorities a much bigger stick. If you have been running this scheme, now would be a good time to talk to a tax attorney.
California closed a loophole that should not have existed in the first place. If you live here and you drive here, you pay here. The Montana trick was clever while it lasted, but it was never going to last forever.
