Prosecutors crack down on 'Montana loophole' luxury vehicle sales tax avoidance

Prosecutors in California, Tennessee and Minnesota have recently announced criminal charges against a slew of defendants, including a YouTube influencer, who allegedly used the so-called “Montana loophole” to avoid paying state sales taxes by buying and registering expensive vehicles through a Montana-based limited liability company.

They join people charged in other states for similar reasons. Although referred to derisively by other states, the practice of buying cars with LLCs is perfectly legal in Montana. But buyers can get in trouble if they don't follow rules in their home states.

“The California Department of Tax and Fee Administration has identified close to 500 California dealers involved in more than 2,500 sales since 2023 to customers claiming to use the vehicle in Montana,” said a press release from California regulators last Friday. “These sales, many of which involve luxury or exotic cars, cost (California) more than $10 million a year in lost tax revenue.”

From 2017 to 2025, the number of luxury vehicles registered every year in Montana has grown eightfold, from 1,000 a year to 8,000 a year, according to Ryan Evans, Montana's assistant budget director.

Last month, the California Department of Justice filed a 56-page complaint against 14 people that accuses the defendants of conspiracy to commit tax evasion, money laundering, perjury and filing false sales tax returns. The value of the California sales tax and registration fees that they allegedly avoided was more than $20 million, because some of the cars involved included a $1.5 million Porsche, a $1.2 million Ferrari and a $1.8 million McLaren.

Montana has no statewide sales tax, one of only five states in the U.S., while the base sales tax in California is 7.25%. So, buyers can save over $100,000 on a $1.5 million car by claiming they bought it and stored it in Montana for a year.

Montana also has low registration fees, no emissions testing, and some counties have no local option tax on registrations. For decades, regulators across the country, from Utah to Georgia, have been charging people with evading the sales tax in their home state by registering an LLC in Montana and using that to buy the car with no sales tax, even though they aren’t residents of Montana and are using roads in their home state.

Regulators and lawmakers around the country say it deprives other states, where the cars are actually being driven and stored, of millions of dollars in revenue. California Attorney General Rob Bonta said that when "bad actors abuse legal loopholes," it deprives the state of revenue for schools and roads.

Montana Sen. Josh Kassmier, a moderate Republican from Fort Benton, sponsored a bill in the last session that would have raised the luxury vehicle registration fees in Montana and allocated that to bridge repairs and victims of crime. It died on a 25-25 vote in the Senate, with both Republicans and Democrats voting against it. Kassmier said the so-called "Freedom Caucus" of hard-right Republicans were opposed to the bill, because they said it was a "sales tax" and that it would scare wealthy car buyers into doing their business in another state.

"Alaska's the only state where it's cheaper, but who's gonna drive it to Alaska or store it there," Kassmier said. "People are using our system to their advantage to pay less taxes. (Lawmakers who opposed the bill) thought there would be less out-of-staters. I don't believe that."

Kassmier said that out-of-state consumers who are buying cars worth over a million dollars are only paying $825 in registration fees.

"So who is really benefiting from our system?" he said. "I'd like to use the money to provide relief to Montana residents."

Scott Mendenhall, the deputy director of the Montana Department of Revenue, told the Montana State News Bureau recently that he was aware of prosecutors in states like Utah filing charges against people related to vehicle tax avoidance. He expressed belief that it might deter people from trying to skirt the rules in their own states.

"Certainly, that will be curtailed, so this will affect where the registration numbers for those type of cars going forward," he said. "It will decline in Montana. Some of the other states will take Utah's lead. I can't blame people that are buying high end cars and RVs for a deal, that's been a boon for Montana."

'The Montana scheme': How the wealthy avoid taxes on luxury vehicles, RVs

State Sen. Greg Hertz, a Republican from Polson, was even more blunt.

"I think that cash cow is going to start dying for Montana," he said.

California prosecutors included a series of text messages from some of the people who were charged in January.

“We’ll make it to Montana in about 45 min.,” says one text from a defendant, after a series of texts about picking up expensive cars.

Another person then replied with a crying/smiling emoji face.

The complaint alleges that none of the vehicles were ever shipped, used or stored outside California. Apparently, investigators were able to utilize traffic camera data to track vehicles and suspects. Most states allow people to avoid a sales tax on vehicles if they are delivered and kept outside of the state for at least 12 months.

“The California Department of Tax and Fee Administration is working to close this loophole that erodes California’s revenue base,” said agency director Trista Gonzalez in a statement. “Our department is identifying questionable transactions through state partnerships to protect the integrity of California’s tax system while ensuring the tax is paid to support our schools, roads, public safety, and essential services that all Californians depend on.”

A Missoulian investigation from 2023 found that some Montana firms make good money of the practice of helping people form LLCs to buy and register luxury vehicles in Montana. It adds some significant revenue to county and state coffers, but it sometimes overloads county clerk and recorder office staff with many out-of-state requests.

In January, prosecutors in Hennepin County, Minnesota, filed a criminal complaint against an auto dealer, Walser Automotive, alleging they had worked with a car broker to buy new cars using a shell company, a Montana LLC, to avoid around $350,000 in Minnesota motor vehicle sales taxes between 2020 and 2023. Walser Automotive Group CEO Andrew Walser released a statement saying he doesn’t believe the company did anything inappropriate and were prepared to share those facts in court.

In November of last year, YouTube auto influencer Cody Detwiler, also known as “WhistlinDiesel,” was arrested in Tennessee on two counts of felony tax evasion. Prosecutors say he registered and titled an expensive Ferrari in Montana, which means he deprived Tennessee of about $30,000 in sales tax revenue. Prosecutors noted he had Montana plates on the car. In 2020, Detweiler got over 16 million views on YouTube when he set the Ferrari on fire in a field in Texas.

Montana's government officials have always touted the circumstances as beneficial for the state and the fact that it's perfectly legal.

Chase Scheuer, the deputy communications director for the Montana Department of Justice (which oversees the Montana Motor Vehicle Division), noted that it is legal for out-of-state people to register cars in Montana under state law.

"This is not a workaround, its Montana law and we’re following and implementing the state law as it stands," he said. "It also went into effect before the current administration. Our MVD office is in communication and does what it can to share helpful information with other states.”

Chase Walker, an analyst with the Montana Legislative Fiscal Division, compiled a report in 2021 about Montana motor vehicle fees. He noted than in 2017, Montana enacted a law that imposes a new fee for luxury vehicles and motorhomes registered in Montana. The fee is $825 for luxury light vehicles with a retail value of over $150,000 and $800 for motorhomes with a retail value greater than $300,000.

"The luxury vehicle fee also highlights the unique tax structure that incentivizes out of state luxury vehicle owners to register their cars in Montana," Walker wrote. "Because there is no sales tax in the state, and several counties also do not levy a local option tax, the cost of registering luxury vehicles here as opposed to other states that may have registration fees, sales tax, and local taxes is significantly lower."

Missoula County is one of the counties that benefits from vehicle registrations.

"Missoula county registers a significant number of the luxury motorhomes in the state, which is likely due to the fact that one of the largest RV dealers in the state is in Missoula," Walker wrote. "Although Missoula county levies a local option tax, the tax only applies to light vehicles, so it does not impact the cost of registering a luxury RV within the county."

From 2017 to 2021, over 4,000 luxury motorhomes were registered in Missoula County, by far the most of any county in Montana. In fiscal year 2025, Missoula County collected $8.6 million on county option taxes for motor vehicle registration and renewals.

Scheuer noted that in 2025, the MVD collected over $145 million in registration fees and over $21.5 million in luxury fees. The luxury fees are deposited into a special revenue account for MVD operation expenses and regular registration fees go into the state's General Fund.

In 2025, there were over 4.1 million vehicles registered in Montana, but that includes everything from trailers to snowmobiles. There were over 60,000 motorhomes registered in the state that year.

Montana Secretary of State Christi Jacobsen often touts the number of “new businesses” that are registered in Montana every year. For example, in a press release this last January, she said that her “pro-business policies have helped push new registrations in 2025 on pace to surpass last year’s record of nearly 64,000 filings.”

It’s not clear how many of those 64,000 filings are simply LLCs created by out-of-state car buyers to purchase and register vehicles in Montana. A spokesperson for Jacobsen's office did not respond to a request for information on how many businesses record no revenue.

Montana State News Bureau reporter Victoria Eavis contributed to this story.