California Shuts Down Montana License Plate Loophole

California has officially closed a loophole that let residents avoid paying sales tax on vehicles by registering them to shell companies in Montana. The Drive reports that Senate Bill 1406 became law on Sept. 30, 2026, after more than seven months of legislative back-and-forth.

Under the old rules, a California resident could register a vehicle to a business based outside the state and skip California's Use Tax, as long as more than half of that business's operations were outside California. That seemed reasonable on paper, but it created an opening: people started setting up fake LLCs in Montana, which charges no sales tax on vehicle purchases and doesn't require inspections or smog checks.

The new law closes that opening by expanding the types of entities subject to the "California-ness" test. It now includes partnerships, limited partnerships, and limited liability partnerships—not just companies and LLCs.

"The bill would also provide that, for purposes of the above-described presumption, a shell company, as defined, is a resident of this state if any shareholder, partner, member, or beneficial owner is a resident of this state."

The upshot: if any person involved in a shell company lives in California, the entire business is treated as a California resident. That means any vehicles it holds in the state—whether Lamborghinis, Bugattis, or everyday cars—are subject to California taxation.

There's a personal sting, too. According to The Drive, the law holds officers, managers, partners, beneficial owners, and members of a shell company personally responsible for unpaid taxes, interest, and penalties. Nonpayment can even become a crime.

For anyone who has been using this workaround: time to check your paperwork. The tax man is coming.