Newsom Torches Registration Loophole

Tesla Cybertruck parked in front of a Tesla building

California’s new law slams the door on Montana plates for California-driven supercars, and the receipts are ugly.

Story Snapshot

Governor Gavin Newsom signed Senate Bill 1406 to curb out-of-state registrations used in California.
State tax and motor vehicle agencies opened hundreds of cases and audits tied to Montana sales.
Prosecutors charged 14 people in a $20 million luxury-car tax case this spring.
Montana law still allows nonresidents to form companies and title vehicles there; use in California triggers tax.

What California Changed And Why It Matters

Governor Gavin Newsom signed Senate Bill 1406 to cut off a popular path for California residents who titled Ferraris, Porsches, and high-end RVs to Montana shell companies, then kept the vehicles in California to dodge sales tax and registration fees. California’s Department of Tax and Fee Administration says the playbook centers on buying and registering through a Montana limited liability company to avoid higher costs in California, which the state now treats as tax avoidance when the car lives here.

California’s tax agency and the Department of Motor Vehicles did not wait for the bill to pass to build a record. The agencies say they have opened more than 400 investigations and nearly 300 dealer audits tied to sales to no-tax states, including Montana. That level of effort shows officials believe the problem is not a few bad apples but a business model. For a state with strained roads and a large budget, missing six and seven figures per car adds up fast.

The Enforcement Heat: Charges, Audits, And Dealer Risk

California’s spring crackdown named 14 defendants and outlined more than $20 million in high-end vehicle purchases tied to schemes that prosecutors say evaded about $1.8 million in taxes. The charges came with words like conspiracy and money laundering, which raise the stakes for anyone who touched the deal chain. A legal memo to manufacturers warned that prosecutors can reach management, coordinators, staff, and customers when the facts support it. That should put every dealer finance office on alert.

California’s message to residents is blunt: if you bring the car into the state and use it here, the tax follows the user, not the paperwork. The Los Angeles Times summed up the rule: you owe state sales tax unless the vehicle is first used and kept out of state for a long enough period to qualify under law. Fox Business put a number on it from the agency’s guidance: 12 months of first use outside California to avoid the bill, a threshold many garage-at-home supercars cannot meet.

Montana’s Door Stays Open—But Use Still Rules The Day

Montana’s policy remains simple: the state has no general sales tax, and anyone can form a company there and title a vehicle in that company’s name, even if they live elsewhere. California’s own tax agency notes that Montana allows out-of-state owners to legally purchase and title vehicles on paper, even when primarily used in other states. That does not save a California resident who drives the car in Beverly Hills. Tax follows use. Paper follows the glove box, not the garage location.

Some commentators say the structure can be lawful when the vehicle really lives out of state. Enthusiast and tax guides argue that a Montana company with real business or a vehicle truly garaged elsewhere sits on firmer ground. But California’s stance is clear: if the wheels spin here most of the time, the bill lands here most of the time. That view aligns with common sense and conservative values of fairness—if you use the roads, you pay the freight.

What Owners And Dealers Should Do Next

Buyers who already used a Montana company should check where the vehicle actually spends its nights and miles. If the answer is California, speak to a qualified tax professional before the knock comes. Voluntary compliance can reduce penalties; waiting for a plate-reader hit or an audit rarely ends well. Dealers should audit their “Montana buyer” files, fix workflows that skip use-tax disclosures, and stop recommending out-of-state titling for in-state cars. The risk now extends well beyond a slap on the wrist.