The giveaway was the plate. A car worth more than most houses, parked in a California driveway, wearing Montana tags and registered to a limited liability company with a P.O. box for an address.
That arrangement has been sold to wealthy buyers for years, and California has now written a law aimed at it. Senate Bill 1406 took effect in late September and changes the state’s tax test for out-of-state entities. If a partner, manager or owner of a foreign shell company is a California resident, the company’s assets in California become taxable under California law. Partners in the LLC are jointly liable for the vehicle taxes owed. Unpaid assessments can be pursued as a criminal matter.
The practice the bill targets is straightforward. Montana has no sales tax and charges low registration fees. A California buyer who registers a car to a Montana LLC avoids the sales tax at purchase and the annual registration fee afterward, sometimes for a vehicle that spends its whole life within a few miles of the Pacific.
Registration agents in Montana built a business on that gap, advertising the structure in motorhome magazines and on enthusiast forums. The pitch was legal enough to survive for two decades because the company, not the resident, was treated as the owner. California’s tax agency has always taken the position that a car kept in the state is taxable there, and auditors have won cases against owners. What changed is the statute, which now reaches the entity itself rather than chasing the individual through an audit.
Tax advisers are still working out what the language means in practice. The bill does not say how the state will identify affected companies, and the Franchise Tax Board has not published guidance on how residents should cure past filings. Several advisers said the practical risk sits with people who formed an LLC in the past three years and never filed a California return for the vehicle.
There is a second, quieter risk. The joint liability clause attaches to partners, which for a single-member LLC means the owner. If the entity is dissolved without paying, the state can pursue the person who signed the formation documents, and it can do so on a theory that carries a criminal penalty rather than a civil one.
California has reasons beyond revenue to care. Vehicle registration fees and sales taxes on cars fund road maintenance and transit, and the state has been short of both. The Legislative Analyst’s Office has repeatedly flagged the erosion of the vehicle fee base as electric cars and out-of-state registrations spread. A car registered in Montana pays nothing toward the roads it uses in Los Angeles.
The timing matters for another reason. The same legislative session produced Leno’s Law, which extends partial smog-check exemptions from 2028 to certain classic cars built in the late 1970s and early 1980s. Read together, the two laws send a message about which vehicles California wants to regulate and which it is willing to leave alone. A 1979 sports car with collector plates gets easier treatment. A 2024 pickup held through a Montana LLC gets a tax bill.
Motorhome owners are the group most exposed, and the least able to absorb the bill. A diesel pusher that costs as much as a house carries a California use tax in the tens of thousands of dollars at the point of first registration, plus an annual fee that scales with the vehicle’s value. Buyers who took delivery out of state and registered through a Montana LLC often paid neither. Under the new law, those buyers can be assessed for the tax they avoided plus interest, and the assessment can reach the entity’s members directly.
The bill also reaches commercial vehicles. A contractor who registers a work truck or a trailer to a Nevada entity while operating from a yard in Fresno fits the definition, and so does a small business that put its delivery vans into a holding company formed in another state. Advisers said the language is broad enough that some companies will need to review structures they set up without any thought of avoiding vehicle fees.
Enforcement will decide how much of this is real. California has few tools at the roadside. A police officer who stops a car with Montana plates cannot easily determine where it is garaged, and the state has no agreement with Montana to share LLC ownership records. Data matching is the likelier route: insurance policies, toll transponders, smog-check records, and the addresses on driver’s licenses all leave traces that auditors can follow.
Owners who want to unwind the structure face a choice. They can register the vehicle in California, pay the use tax and the annual fee, and close the LLC. Or they can keep the arrangement and accept the risk that the state finds them later, with penalties calculated from the date of purchase rather than the date of discovery.
For the buyers who were sold the Montana route as a permanent solution, the calculation has changed. The savings on a six-figure car can run to five figures in the first year. The exposure now includes back taxes, interest, penalties and, in the worst case, a criminal referral. Advisers said most of their clients are choosing to register in California and absorb the cost.
Montana’s registration agents have not stopped advertising. Their pitches now emphasize privacy and the absence of an annual inspection, which are real benefits and entirely lawful. The tax advantage, for California residents, is the part that just got harder to defend.
