California closes ‘Montana’ loophole wealthy used to avoid car taxes as billionaire tax goes to voters 

A new law has closed California’s “Montana loophole,” a technique residents used to buy cars through Montana shell companies that cost the state an estimated $20 million annually in tax revenue.

The move is part of broader efforts to collect revenue from wealthy individuals, including a proposed billionaire tax that has already prompted multiple high-net-worth individuals to leave the Golden State. 

California car buyers face sales tax rates of 7.75% to 10.75% on their purchases, which can amount to tens of thousands of dollars on a luxury vehicle. To avoid the tax, owners have registered approximately 2,500 vehicles in Montana since 2023, according to state Sen. Jerry McNerney, D-Pleasanton, who sponsored the legislation. Montana is one of five U.S. states without a general sales tax.

McNerney, who chairs the Senate Revenue and Taxation Committee, said the scheme involves “setting up phony shell companies to buy Ferraris, Lamborghinis, and other exotic vehicles in Montana.”

Gov. Gavin Newsom signed SB 1406 late last month, cracking down on companies that lack a specific business activity or purpose, fail to maintain a physical location outside California, lack employees or fail to file taxes in another state.

The legislation also defines shell companies as California residents if any of their shareholders, partners, members or beneficial owners are state residents.

The move comes as voters consider a proposed one-time 5% wealth tax on residents with a net worth of $1 billion or more, as Heartlander News reported. The proposed ballot measure has already prompted Meta CEO Mark Zuckerberg, Google co-founders Sergey Brin and Larry Page, PayPal co-founder Peter Thiel and others to leave the state.

Their departures have already cost the state more than $1 trillion in tax revenue, David Lesperance, an attorney for high-net-worth clients, said in July.

The measure is on the ballot in the midterm elections Nov. 3.

(Image credit: Photo by Lance Asper on Unsplash)