The Loophole for Registering California Citroëns in Montana is Closing
To avoid emission regulations in California as well as sales tax, it has been a practice for some classic car owners in California to register cars that they purchase in Montana.
The California Department of Tax and Fee Administration and Department of Motor Vehicles has found hundreds of California-based dealerships involved in more than 2,500 sales to customers claiming they’re Montana drivers. Many of the sales involve luxury or exotic cars, and regulators said it cost the state more than $10 million in lost revenue.
Although the crackdown comes as result of new car sales through dealers in California, it unfortunately affects Citroën owners who have chosen Montana to register their vehicles to avoid smog testing in California, as regulators have been reviewing every recent car sale in Montana as they crack down on the tax-evading scheme called the “Montana Loophole”. Visitors from other states purchase and register a car in Montana to save money, sometimes by setting up a limited liability company. The pricier the purchase, the more the loophole can save the tax dodger. In California, the base rate sales tax is 7.25%.
The Montana Loophole has been used by Citroën owners in California as an avenue of not just tax savings but emissions avoidance with vehicles registered as 1976 and newer as they have great difficulty meeting California’s strict emission standards. 1975 and older cars are exempt from smog emissions testing.
The Leno Law, officially known as Senate Bill 712, aimed to exempt classic cars (specifically, vehicles at least 35 years old) from smog check requirements in California. However, it was not passed by the California legislature. (A modified version is in the works.)
Since 2023, the California DMV investigators said they found 601 vehicles that were fraudulently registered, recovering $2.3 million in registration and taxes.
Meanwhile, the CDTFA said it started auditing nearly 300 dealers for high-end vehicles that were related to states with no taxes. Besides Montana, the agency is looking into other no-tax states such as Alaska, Delaware, New Hampshire and Oregon.
As they say — “The gig is up!”