California has stepped up enforcement against vehicle buyers who use Montana LLCs to avoid California taxes and registration requirements. On September 30, 2026, Governor Gavin Newsom signed Senate Bill 1406, expanding the state’s ability to identify shell companies and pursue unpaid vehicle use taxes. California residents who own vehicles through out-of-state LLCs should review where their vehicles are actually used, their registration obligations, and whether California use tax applies.
Why California Is Targeting Montana LLC Vehicle Registrations
For years, some California vehicle buyers have used Montana limited liability companies (LLCs) to purchase and register expensive cars without paying California sales or use tax.
The arrangement became popular among buyers of luxury cars, exotic vehicles, and recreational vehicles because Montana has no general statewide sales tax.
But registering a vehicle under a Montana LLC does not automatically exempt it from California taxes or DMV requirements.
On March 6, 2026, the California Department of Tax and Fee Administration (CDTFA) announced that it was working with the California Department of Motor Vehicles (DMV) to investigate dealerships and customers involved in potentially improper Montana vehicle registrations.
According to the CDTFA’s March 2026 enforcement announcement, the state was losing more than $10 million annually through the arrangement.
The issue received further attention when California enacted SB 1406 in September 2026, strengthening rules concerning out-of-state shell companies and vehicle-related use taxes.
For buyers, the message is clear: the name on a vehicle’s title is not the only factor that determines its California tax obligations.
What Is the Montana LLC Registration Loophole?
The Montana LLC arrangement generally involves creating a company in Montana and registering a vehicle under that company’s name.
A typical transaction works like this:
- A California resident establishes a Montana LLC.
- The LLC purchases or takes title to a vehicle.
- The vehicle receives Montana registration and license plates.
- The owner keeps or regularly operates the vehicle in California.
The intended financial benefit is avoiding California sales or use tax and potentially certain registration costs.
However, California generally considers factors such as residency, where the vehicle is purchased, where it is brought after purchase, and how it is used.
A vehicle purchased by an out-of-state business may still be subject to California tax if the transaction falls within the state’s use-tax rules.
The important distinction is between a legitimate out-of-state business transaction and an arrangement created primarily to avoid taxes on a vehicle used in California.
Owning a Montana LLC is not, by itself, unlawful. The actual circumstances of the purchase, business, and vehicle use matter.
What Changed Under California Senate Bill 1406?
California’s new law, SB 1406, was signed on September 30, 2026, and took effect immediately.
The legislation amends California’s Sales and Use Tax Law to address situations where out-of-state entities are used to conceal a California resident’s connection to a vehicle purchase.
1. Expanded Residency Rules for Shell Companies
Previously, California’s relevant use-tax residency provisions generally treated a closely held company or LLC as a California resident when California residents held at least 50% of its ownership interests.
SB 1406 adds provisions addressing shell companies with California connections, including situations where a California resident holds an ownership or beneficial interest.
This makes it more difficult to rely on an out-of-state company structure alone to establish that a vehicle purchase is unrelated to California.
2. Greater Scrutiny of Business Activity
The law identifies factors that may indicate a company is operating as a shell entity, including:
- No identifiable business activity or legitimate business purpose.
- No physical business location outside California.
- No employees receiving W-2 wage statements.
- Missing required federal or out-of-state tax filings.
These factors are considered under the statutory framework. No single detail should be treated as automatic proof that every out-of-state LLC is improper.
3. Potential Personal Liability for Unpaid Taxes
SB 1406 also establishes provisions allowing California tax authorities to pursue certain individuals associated with qualifying shell companies for unpaid use-tax liabilities.
This matters because forming an LLC does not necessarily protect an individual from liability under the new statutory rules.
The law includes specific conditions and limitations, so its application to an existing purchase requires a review of the facts and transaction dates.
Buyers can review the enacted legislation through California Senate Bill 1406.
How Widespread Is the Montana Registration Issue?
California officials have reported substantial use of the Montana registration arrangement.
According to an October 2026 statement from Senator Jerry McNerney’s office, CDTFA identified at least 2,500 vehicle sales involving California residents since 2023 that used the Montana loophole.
The same statement estimated approximately $20 million in annual lost California tax revenue.
These figures are government estimates associated with the identified arrangement, not a count of all Montana-registered vehicles operating in California.
The state’s enforcement activity has included investigations and audits of vehicle transactions, with particular attention to high-value purchases and dealerships involved in facilitating out-of-state registrations.
For California buyers, this means an out-of-state registration should not be assumed to prevent scrutiny of the original purchase.
Is Montana LLC Car Registration Illegal in California?
Not every Montana LLC vehicle registration is illegal.
A legitimate Montana business may own and operate vehicles under Montana registration when its activities and vehicle use comply with applicable laws.
Problems can arise when a California resident uses an out-of-state entity to avoid California tax or registration obligations on a vehicle that is actually purchased for, stored in, or used in California.
For example, consider two situations.
Example 1: A legitimate Montana business
A business operates in Montana, maintains actual business activities there, and purchases vehicles for those operations. Its registration and tax obligations depend on where the vehicles are used and other relevant circumstances.
Example 2: A California resident using a Montana shell company
A California resident forms an LLC with no meaningful Montana operations, purchases an expensive vehicle through that LLC, and keeps the vehicle primarily at a California residence.
The second arrangement may raise California use-tax and registration issues, even when the Montana title and registration are valid.
California’s rules should be evaluated based on the actual facts, not simply the state where the LLC was formed.
What Penalties Could California Vehicle Buyers Face?
Improper out-of-state vehicle registration can create significant financial consequences.
Depending on the circumstances, potential liabilities may include:
- Unpaid California use tax.
- Interest on overdue taxes.
- Applicable penalties for noncompliance or fraud.
- California registration fees and applicable late penalties.
- Additional costs associated with correcting title or registration records.
CDTFA has warned that fraudulent out-of-state vehicle registrations intended to evade California tax may result in a 50% penalty on the tax determined to be due.
That penalty is not automatic for every buyer with Montana plates. Its application depends on the relevant statutory requirements and enforcement findings.
Example: The Potential Cost of Unpaid Use Tax
Suppose a California resident purchases a $200,000 vehicle and improperly avoids an illustrative 8% California use-tax obligation.
Cost | Illustrative amount |
Vehicle purchase price | $200,000 |
Assumed use tax at 8% | $16,000 |
Potential 50% fraud penalty on that tax | $8,000 |
Combined tax and penalty | $24,000 |
This example is hypothetical. The actual tax rate depends on the applicable California jurisdiction and transaction. Interest, other penalties, and registration fees are excluded.
The financial exposure can be substantial, particularly for expensive vehicles.
Anyone facing a CDTFA assessment should consult a qualified California tax professional or attorney before responding or making decisions about liability.
When Must an Out-of-State Vehicle Be Registered in California?
California DMV registration requirements are separate from the question of whether a vehicle purchase is subject to use tax.
According to the California DMV vehicle registration requirements, a person who becomes a California resident or obtains a job in California generally has 20 days to register an out-of-state vehicle.
Other requirements can apply depending on ownership, residency, and the vehicle’s use in California.
A Montana registration does not automatically override these obligations.
When bringing an out-of-state vehicle into California, owners may need to provide:
- An out-of-state certificate of title or other acceptable ownership documents.
- The current out-of-state registration.
- A completed California Application for Title or Registration (REG 343).
- Vehicle identification number (VIN) verification, when required.
- Smog certification or applicable exemption documentation.
- Payment of applicable California registration fees and taxes.
Additional documents may be required depending on whether the vehicle is owned by an individual, business, lender, or leasing company.
Buyers should also confirm that the vehicle meets California emissions requirements before purchasing it. Certain vehicles that do not meet California emissions standards may not qualify for registration.
For assistance with the paperwork, LC Registration offers California out-of-state vehicle registration services to help customers understand and complete eligible DMV transactions.
What Should Existing Montana LLC Vehicle Owners Do?
If you currently own a Montana-registered vehicle through an LLC and live in California, reviewing your situation before receiving an enforcement notice may help you identify outstanding requirements.
Step 1: Review Where the Vehicle Is Used
Determine where the vehicle is normally kept, driven, and operated.
Keep records that accurately reflect the vehicle’s location and use, including relevant storage, insurance, and maintenance documents.
Step 2: Review the LLC's Business Purpose
Consider whether the LLC has genuine business operations, a physical location, employees, and required tax filings.
The company’s actual activities matter more than its registration documents alone.
Step 3: Check California Tax Obligations
Consult a California tax professional to determine whether use tax applies and whether any exemptions or statutory protections are available.
Do not assume that transferring the title or obtaining California plates automatically resolves previously unpaid taxes.
Step 4: Confirm California DMV Requirements
Review whether the vehicle must be registered in California and identify the required ownership and vehicle documents.
If a title or ownership change is necessary, review the applicable California vehicle title transfer requirements.
Step 5: Correct Registration Issues Through the Proper Process
If California registration is required, complete the necessary DMV transaction using accurate ownership and vehicle information.
LC Registration can assist with eligible registration and title paperwork. Questions involving disputed taxes, penalties, or LLC liability should be handled by the appropriate tax or legal professional.
How LC Registration Can Help With Out-of-State Vehicle Registration
Registering a vehicle purchased or previously titled in another state can involve additional documentation, VIN verification, emissions requirements, and California DMV fees.
At LC Registration, we help California vehicle owners navigate registration and title transactions with clear guidance and practical assistance.
As a California DMV-authorized registration service provider, we assist customers with eligible vehicle registration transactions, including out-of-state transfers and title-related paperwork.
Whether you recently purchased a vehicle from another state or need to review the documents required for California registration, our team can help you understand the next steps.
Need help registering an out-of-state vehicle in California?
Explore LC Registration’s out-of-state vehicle registration services or contact our team for assistance.
LC Registration is a private DMV-authorized service provider, not a government DMV office. Additional service fees may apply.
Frequently Asked Questions
Can California residents register cars through a Montana LLC in 2026?
A California resident may have a legitimate ownership interest in a Montana LLC, but that does not automatically exempt a vehicle from California use tax or registration requirements. The business’s activities, the vehicle’s use, and applicable state laws determine the obligations.
Does SB 1406 ban Montana LLC vehicle ownership?
No. SB 1406 addresses California use-tax rules involving shell companies and certain individual liabilities. It does not impose a blanket ban on owning a vehicle through a Montana LLC.
Can California charge use tax on a Montana-registered vehicle?
Yes. California may impose use tax when the vehicle purchase and its subsequent use fall within the state’s tax rules. Out-of-state registration alone does not establish a tax exemption.
How much is the penalty for avoiding California vehicle use tax?
In qualifying fraudulent registration cases, a penalty equal to 50% of the tax due may apply, along with the underlying tax and interest. Other penalties may also apply depending on the circumstances.
Does registering the vehicle in California eliminate past tax liability?
Not necessarily. Completing DMV registration does not automatically settle outstanding use-tax obligations. Owners should address registration and tax compliance separately.
Can LC Registration help transfer a Montana-titled vehicle to California?
LC Registration can assist with eligible out-of-state vehicle registration and title paperwork. Transactions involving LLC ownership, outstanding tax assessments, or disputed legal ownership may require additional documentation and professional advice.
