California Is Finally Cracking Down On Montana's Supercar Tax Loophole

A newly enacted California law will make it harder for residents who want to avoid paying taxes on their high-priced supercars and sports cars. Senate Bill 1406 authorizes the state to pursue residents who create phony shell companies designed to circumvent the state’s tax code.

The new law effectively closes the "Montana Loophole," a legal strategy owners across the country use to avoid paying taxes on cars, RVs, and aircraft. The state is attractive because it lacks a statewide sales tax on vehicle purchases.

Montana’s loose rules for forming a limited liability company allow out-of-state owners, like those from California, to buy and title vehicles in the state without living there. This allows owners to avoid paying thousands of dollars in taxes on their new vehicle purchase at home, and California is cracking down.

What Does SB1406 Actually Do?

California’s new law expands the state’s definition of who is a resident for tax purposes. It now includes shell companies with at least one business member who is a California resident, and it also allows the state to impose tax liability on individual members.

The law also adds a list of criteria that could be used as evidence of a shell company attempting to evade taxes. A company that lacks business activity, fails to maintain a physical location outside California, fails to employ individuals receiving W-2s, or fails to file federal or out-of-state tax returns could run into trouble.

The new law does not target vehicles owned and operated outside California, or vehicles owned and operated outside the state during the first 12 months of ownership. According to California’s Department of Tax and Fee Administration, the state is losing out on $20 million in annual tax revenue through the "Montana Loophole."

California State Senator Jerry McNerney, who proposed the bill in March and is chair of the state’s Senate Revenue and Taxation Committee, said:

'For years, wealthy tax evaders have avoided paying California sales taxes by setting up phony shell companies to buy Ferraris, Lamborghinis, and other luxury vehicles in Montana and then bringing the vehicles back to our state. Closing the Montana Loophole will help restore some fairness to our sales tax system by ensuring that everyone pays what they owe. SB 1406 also enables the state to recover up to $20 million in lost revenue each [year] to pay for road repairs and other essential services.'

Coming Crackdown

California is not the only state cracking down on residents using the “Montana Loophole.” Back in 2025, Tennessee law enforcement officers arrested Cody Detwiller, the YouTuber known as WhistlinDiesel, and charged him with tax evasion.

Prosecutors alleged Detwiller registered a 2020 Ferrari F8 Tributo through a Montana LLC to avoid paying Tennessee taxes on the purchase. He was arrested a second time in early 2026 regarding a separate warrant tied to a second vehicle.

Both cases remain ongoing.

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