California Closed the Montana License Plate Loophole

California has moved to stop wealthy residents from sidestepping vehicle sales and use tax by registering cars to out‑of‑state shell companies, most famously Montana LLCs that levy no vehicle sales tax or inspection requirements. For years California law taxed any vehicle a resident brought into the state but treated businesses differently: if more than half of a business was owned outside California, its vehicles could escape California tax. That loophole encouraged creation of bogus out‑of‑state entities to hold luxury cars on non‑California plates while their owners lived in California.

Senate Bill 1406, effective Sept. 30, 2026, widens the entities subject to the “California‑ness” test to include partnerships, limited partnerships and LLPs, and flips the presumption: any shell company with a shareholder, partner, member or beneficial owner who is a California resident is itself a California resident for tax purposes. The 50% outside‑ownership defense is effectively eliminated, and officers, managers, partners and beneficial owners can be held personally liable for unpaid tax, interest and penalties; nonpayment may constitute a crime. The change aims to close the Montana plate strategy and make owners directly accountable.