Luxury car owners in California may soon face tighter tax rules, as lawmakers move to close a loophole that has saved drivers millions. The proposed legislation could significantly boost public funds, potentially recovering up to $20 million annually for the state.
The loophole allows buyers to register high-value vehicles in Montana, where there is no state sales tax. Owners often create shell companies in Montana to legally hold the cars, even if the vehicles are driven primarily in California. This strategy has become popular among collectors of brands like Ferrari and Porsche.
California officials estimate that around 2,500 vehicles linked to state residents have been registered in Montana since 2023. This has resulted in an annual tax revenue loss of roughly $20 million, according to the California Department of Tax and Fee Administration.
Democratic lawmaker Jerry McNerney has introduced Senate Bill 1406 to address the issue. He argues that the growing use of shell companies is widening what is now commonly referred to as the “Montana Loophole.”
Under the proposed law, California would expand its definition of a tax resident. This means that if a shell company includes a California resident, the state could treat the vehicle as taxable. Authorities would also gain the power to hold individual members of these companies financially responsible.
The issue has gained attention following recent legal action by the state’s attorney general. Earlier this year, prosecutors pursued a case involving tax avoidance linked to high-end models such as the Porsche 918 Spyder, McLaren Elva, and Ferrari F12 Tdf.
While the bill’s chances of passing remain uncertain, the proposal signals a stronger stance against tax avoidance. For many Californians, it could mean a fairer system where luxury purchases contribute more directly to public services.
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