If you go to a car show or meetup in California and see a rare or exotic car such as a Ferrari, Lamborghini, or the recently legal Nissan R34 Skyline GT-R, you probably won’t see it wearing California license plates. You may see them with plates from Arizona, Oregon, Nevada, or even Alaska. But the most common license plate comes from Montana.
Montana at one time was heaven for car enthusiasts. The Treasure State is known for having very scenic driving roads, such as Beartooth Highway, the Lake Koocanusa Scenic Byway, and the various roads in Yellowstone National Park. Also, until recently, Montana had a very lax speeding law which led Car and Driver Magazine to call it the autobahn of America. Since 1974, in response to the Emergency Highway Energy Conservation Act which limited federal freeway speed to 55 miles per hour, Montana’s anti-speeding law fined violators a whopping $5 (or $30 in 2026.) But in 1998, a serial litigant ruined it for the rest of us when he contested his $5 fine all the way up to the Montana Supreme Court. A divided court ruled that the $5 fine was unconstitutionally vague.
But today, people who purchase expensive cars are getting Montana license plates not for its scenery or its once liberal speed laws. Instead, they are getting them to avoid sales taxes and emissions rules in California and other states. This was typically done by forming a Montana limited liability company (LLC) wholly owned by a California resident which would then purchase the car. The LLC would then register the car in Montana.
The California Department of Tax and Fee Administration (CDTFA), the agency responsible for collecting sales taxes, has announced that, in conjunction with the DMV, they will be cracking down on auto dealers who help buyers living in California obtain Montana license plates.
Also, the New York Times has reported that California has charged 14 people with tax evasion connected to obtaining Montana license plates for the sole purpose of not paying California taxes.
Looking at social media posts responding to the article, the responses fall mainly into two factions. The first group has no sympathy for tax cheats. The second group of people think the tax is excessive. The confusing part about the latter group is that many of them paid thousands in sales taxes for their daily drivers, yet advocate for supercar owners who could probably afford to pay the sales tax on their million-dollar hypercars. And there are also a few people who are temporary residents such as military or students.
While average people might scoff at these elite-world problems, registering an exotic car in California is sometimes difficult to the point where most people will just take their chances with a Montana license plate.
California has some of the highest sales taxes in the nation, with most major cities charging 10% on average.
There is a legal way to avoid the sales tax or use tax. A car is not subject to California use tax if the car was physically out of state for the first 12 months of ownership. Most megawealthy car collectors will take advantage of this by simply keeping the car out of California for the requisite period. It is easy for them because they don’t need to flex their 12th Bugatti or LaFerrari in Santa Monica or Beverly Hills. It is cheaper for them to transport the cars to a concourse show in another state.
But those who toiled and saved to purchase a salvage title Ferrari Mondial or got it on a 12-year payment plan at 12% interest need to post a video of them driving it out of the lot while tagging #Ferrari and #GlorytoGod. And these people will go to car shows posting their social media handles for all to see, including tax investigators. These social media posts will be used as evidence of physical presence.
The other problem when it comes to registering cars in California is its strict emissions rules. In the past, California had huge amounts of smog. Those who grew up in the 1950s and 1960s would remember their eyes burning when they went outside because of the smog. In response, California established the California Air Resources Board (CARB) which later implemented the federal Clean Air Act. The state enacted laws that required cars to have catalytic converters and perform regular smog tests. This dramatically reduced smog emissions in California.
Recently, auto enthusiasts have claimed that CARB has gone too far with their regulations. In 2021, CARB ruled that any car that has a modified Electronic Control Unit (ECU) will automatically fail a smog check unless the modification is approved by CARB. The problem is that getting this approval (known as an Executive Order) is very difficult to get and is near impossible for your DIY hobbyist. This rule came in response to people driving diesel trucks modifying their engines to blow black smoke in the air — commonly known as “rolling coal.” But the rule effectively made it difficult or even impossible to tune cars.
Another regulation problem involving CARB is its treatment of imported vehicles, called Direct Import vehicles in California. These are cars made overseas but not sold in the U.S. This includes cars like the Audi RS 4 Avant Station Wagon, the E36 European-spec BMW M3 with 320 horsepower, small Japanese kei-cars such as the Honda Beat and Suzuki Cappuccino, and the Nissan Skyline. It is not enough for the car to be over 25 years old which makes the car legally importable into the U.S. In California, it must go through its own compliance and modification process.
The process is intensive. It requires a CARB-approved modifier, such as equipping special catalytic converters, and oxygen sensors, to name a few. Once the requisite modifications are done, it is taken to a CARB lab for emissions testing. If it fails, then it is back to the drawing board, where more modifications are done. Finally, once it passes the CARB lab test, it is taken to a Bureau of Automotive Repair (BAR) referee for inspection. Once the referee approves, it will receive a BAR sticker and then the car can finally be registered in California.
The compliance process mentioned above can take months. There have been reports that it can take up to six months. Usually the process will take less time if the car is fully stock with no modifications.
Unsurprisingly, the process is expensive. Smaller cars are charged a few thousand dollars while high-end cars can be charged up to $15,000. Also, only one company in California has the credentials to do this, which pretty much creates a consumer-unfriendly monopoly.
Given the time and money required to make the car emissions compliant in California, with fees high enough to buy a used car in some cases, many people will just take the risk and cut corners.
We will see whether California is serious about going after people using Montana plates. But CARB also needs to make their compliance rules easier and cheaper so people will not need to turn to Montana plates. If there is interest, I will write a follow-up column on how CARB can make it easier for imported cars to be in smog compliance and how states can step up their game to go after tax cheats.
Steven Chung is a tax attorney in Los Angeles, California. He helps people with basic tax planning and resolve tax disputes. He is also sympathetic to people with large student loans. He can be reached via email at stevenchungatl@gmail.com. Or you can connect with him on Twitter (@stevenchung) and connect with him on LinkedIn.
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