California Closed the Montana License Plate Loophole
California has enacted Senate Bill 1406, which closes a loophole that allowed residents to avoid vehicle taxes by registering cars through out-of-state shell companies in places like Montana. The new law expands the definition of businesses subject to California tax laws to include various types of partnerships.
Why it matters
The legislation aims to prevent tax evasion by wealthy residents and ensures that vehicles used primarily in California contribute to state tax revenue.
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It’s official: California has closed the Montana license plate loophole . After more than seven months of legislative shuffling, CA State Bill 1406 (“Sales and Use Tax Law: vehicles: shell companies”) became law on Sept. 30, 2026, making it much harder to get away with the shell-company shenanigans rich Californians have exploited for decades.
Existing California law says any vehicle, vessel, or aircraft a California resident “shipped or brought into the state” is subject to taxation under the state’s Sales and Use Tax Law, whether it is registered there or not. This same rule applied to vehicles registered to a business, but because businesses aren’t people, the law set different standards for establishing its “California-ness.”
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