It’s official: California has closed the Montana license plate loophole. After more than seven months of legislative shuffling, CA State Bill 1406 (“Sales and Use Tax Law: vehicles: shell companies”) became law on Sept. 30, 2026, making it much harder to get away with the shell-company shenanigans rich Californians have exploited for decades.
Existing California law says any vehicle, vessel, or aircraft a California resident “shipped or brought into the state” is subject to taxation under the state’s Sales and Use Tax Law, whether it is registered there or not. This same rule applied to vehicles registered to a business, but because businesses aren’t people, the law set different standards for establishing its “California-ness.”
Essentially, if more than half of your business was held outside California, you could keep your vehicle registered to that out-of-state business without paying Use Tax in California. This seems like a reasonable qualifier on paper. Say you live in Nevada and your vehicle is registered to your business based there; if you operate a branch office on the California side of Lake Tahoe, for instance, you could legally keep your car there on Nevada plates so long as the bulk of the business was based in Nevada. This is a gross oversimplification, but you get the basic idea.
This arrangement seemed to work just fine for everyone involved until a bunch of people started registering fake LLCs in Montana (though not exclusively), which doesn’t charge sales tax on vehicle purchases (or require owners to inspect/smog their cars). Under the old law, only companies and limited liability companies were subject to the California-ness test; the new law expands that definition to include partnerships, limited partnerships, and limited liability partnerships. And then there’s the whammy (emphasis mine).
“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 bill summary says.
In other words, the old 50% test is out. If anyone running the business is a California resident (by the updated definition outlined above), then the whole business is a California resident, and any assets (including Lamborghinis and Bugattis) held in the state are subject to California taxation. And just in case you need it spelled out, that means you’re on the hook for that tax liability as a fellow partner/member:
“The bill would hold any officer, manager, partner, beneficial owner, or member of a shell company personally liable for any unpaid taxes, and any interest and penalties on those taxes, the nonpayment of which may constitute a crime, due on the purchase of a vehicle, vessel, or aircraft.”
Better make sure your paperwork is in order. The tax man’s a-comin’.
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