California has enacted Senate Bill 1406 to address tax evasion involving luxury vehicles. The legislation targets residents who establish shell companies in Montana to bypass state sales taxes on cars, aircraft, and recreational vehicles. Montana is a popular jurisdiction for this practice due to its lack of statewide sales tax on vehicle purchases and lenient rules for forming limited liability companies.
The new law expands the definition of tax residency to include shell companies with at least one California-based member. Authorities can now impose tax liability directly on individual members of such entities. Criteria for identifying tax-evading shell companies include a lack of business activity, no physical location outside California, absence of W-2 employees, and failure to file federal or out-of-state tax returns.
The legislation does not apply to vehicles operated exclusively outside California or those kept outside the state during the first 12 months of ownership. State officials estimate that the Montana loophole has resulted in an annual loss of $20 million in tax revenue. These recovered funds are intended to support road repairs and other essential public services.
Legislative efforts to curb this practice are gaining momentum across the United States. In Tennessee, authorities arrested YouTuber Cody Detwiller, known as WhistlinDiesel, in 2025 and 2026. Prosecutors charged him with tax evasion, alleging he used Montana-based LLCs to register luxury vehicles, including a 2020 Ferrari F8 Tributo, to avoid local taxes.
