California has closed the Montana license plate loophole after more than seven months of legislative effort. CA State Bill 1406, titled 'Sales and Use Tax Law: vehicles: shell companies,' became law on Sept. 30, 2026, targeting the use of shell companies to avoid vehicle use taxes. Previously, California law taxed vehicles brought into the state by residents, but allowed out-of-state registered businesses to avoid tax if over half their operations were outside California.
This enabled residents to register luxury vehicles via Montana LLCs—where no sales tax or smog inspections apply—to evade California taxes. The new law expands the definition of 'California-ness' for businesses to include partnerships, limited partnerships, and limited liability partnerships. Crucially, it replaces the 50% ownership test: if any shareholder, partner, member, or beneficial owner is a California resident, the entire business is deemed a California resident, making all in-state assets subject to use tax.
Officers, managers, partners, beneficial owners, or members of such shell companies are now personally liable for unpaid taxes, interest, and penalties, with nonpayment potentially constituting a crime. The change ends a decades-long tax avoidance strategy used by wealthy Californians to register high-end vehicles like Lamborghinis and Bugattis through out-of-state entities.
Source: Hacker News · Summarized by HeadlinesBriefing