Tax & Accounting News

The Montana Two-Step for Avoiding Car Registration Fees and Taxes

by
Lee Reams II
on
9/23/2015
The Montana Two-Step for Avoiding Car Registration Fees and Taxes

As state budgets get tighter and taxes go higher, abuses of tax loopholes and downright tax evasion have become more prevalent. This includes registering cars in states with low-cost registration, such as Montana. This practice is quite prevalent in California, but it has also drifted to states you might not think of. Millions of dollars in fees, which are needed to keep state governments and highways running, are at stake.

A recent report by CBS Minnesota detailed how authorities are now cracking down on Minnesota residents who buy cars in the low-sales-tax state of Minnesota but who register their cars in the low-registration-cost state of Montana.

“This is illegal. It's tax evasion,” said Lt. Tiffani Scheigert of the Minnesota State Patrol. “These individuals are evading taxes because by registering in Montana, they are avoiding sales tax there, and yet they are operating the vehicles here in Minnesota as a Minnesota resident.”

A 2013 article entitled “Exotic Cars and Montana Plates” stated that the scheme is “all about taxes,” as more and more exotic cars are registered in the state but showing up on the east coast. We are talking about cars with price tags of over $1 million, leading to tens of thousands of dollars in lost fees per car.

Law firms and websites even specialize in showing high-net-worth individuals how to circumvent the rules by establishing a LLC and paying a fee. A simple Google search turned up a website located in Whitefish that will assist you with the process, including the formation of an LLC.

They go as far as saying...

“That means, if you buy an $800,000 Maserati, Lamborghini, Bentley, Porsche, Bugatti, McLaren, Aston Martin, Mercedes Benz, BMW, Mangusta, or any expensive vehicle, you'll only be looking at $300 for a Montana LLC, $500 for us to get the plates, registration and title, and then about $90-$220.00 to the Flathead DMV the next year, $15 to the State of Montana for the LLC, and $49 a year for us to be the registered agent and use our address.”

These firms actually use the term “avoid sales tax” in their marketing literature.

The State of California has set up a Cheaters program where neighbors can rat out neighbors. In California, you have only 20 days to register your car if you move there from another state. Residents who have Montana plates but do not reside there are obviously flaunting the laws.

In California, car registration fees go primarily to local government (40.7%), with only 13% going to the state highway system and Caltrans. Another 25.7% goes to the California Highway Patrol for enforcement, and 13.9% to the Department of Motor Vehicles to manage its entire program.

What do you think about the Montana two-step—is it right or wrong?

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Lee Reams II

Lee Reams II

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I am a tax and business news junkie who has spent the last 20 years developing and executing "best in class" word-of-mouth marketing campaigns for tax and accounting professionals. With TaxBuzz and CountingWorks we have taken that same commitment to quality content directly to the consumer. Keeping you up-to-date with the latest tax law changes, business growth tips and planning strategies to help you reach your best financial outcome.

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