Tax Law Archive

Answer: Yes. In Montana, like in any other state, it’s legal to register a car as long as you comply with the state’s Department of Motor Vehicles (DMV) requirements. There are no existing Montana regulations that prohibit individuals from purchasing a vehicle outside the state and then registering it under a shell corporation based in Montana.

It’s a legal loophole you can use, even if you’re from California.  Importantly, Montana does not require in-state vehicle inspections–and they don’t require to be driven or stored in-state either.

When considering registration in Montana, especially through a Montana Limited Liability Company (LLC), we should go over the legality and the various reasons to opt for this route, including tax benefits and avoiding state-specific regulations. Many high-Dollar cars, motor homes, boats and other toys are frequently registered in Montana. Here’s a more generalized overview of what you should know:

Tax and Registration Fee Savings

• Using a Montana LLC for your car(s) registration and a MT title application can lead to significant savings on sales tax and registration fees, particularly if you reside in a state with high rates (such as California). For instance, one of my relatives has registered a motor home in Montana to avoid steep sales taxes and registration fees in their home state.
• The financial benefit can be substantial, especially for high-value assets. A business acquaintance of ours managed to avoid taxes on over $500,000 worth of vehicles over several years through a Montana LLC.

Avoiding State-Specific Emissions and Smog Requirements

• Montana’s lack of smog laws is a benefit, especially if you own older cars and trucks that might not pass smog checks in states with stringent environmental regulations. Registering an older high-value sports car or vehicle that’s not yet considered a classic but is challenging to get smogged in CA for instance is a common candidate. I’ve seen modified ZR-1 Corvettes and Zl-1 Camaros with MT license plates at Cars and Coffee more than a few times. But typically it’s the exotics like Ferrari’s and Lamborghinis that cost over $500,000 new who’s owners elect to go the Montana registration route.

Financing and Insurance

• Securing financing for a car under a Montana LLC can be challenging, as not all financial institutions provide loans for vehicles registered to an out-of-state LLC. Nonetheless, there are specific lenders that cater to these situations.
• It’s possible to insure the car in the state where it’s primarily used, adding the Montana LLC as an additional insured.

Enforcement and Legal Aspects

• To avoid tax liabilities, legally I’d advise to keep the car out of the state where it’s normally used for at least one year. I’ve heard a story of California’s tax department coming after someone for not adhering to this guideline.
• Ensure that the car’s and LLC’s names and addresses match for valid registration. If authorities start inquiring, they might request documentation to verify the legitimacy of the registration. Be aware that in California and Arizona there are apparently hotlines for “tips” that a neighbor or passerby can use to report you. Enforcement is usually up to a given state’s revenue department, not the police. For example in Arizona, there is a department with a dedicated unit focused on collecting use and sales taxes from high-value vehicles that reside in Arizona but are not registered there. To enforce this, officials from the department attend events like Cars and Coffee and other major auto shows. They document cars, trucks, motorhomes etc. with out-of-state registrations, especially those seen repeatedly at these events. While some vehicle owners are caught and penalized for this practice, others manage to avoid detection.To avoid falsifying records, you’d have to act preemptively and have your ducks in a row.This process is similar to tax planning, where you need to plan ahead and put the things in place that you may need in the future. Remember that tax avoidance is a virtuous obligation. Tax evasion is a crime. Some hypothetical examples could include:
  • Arranging with a storage facility or a person with property in Montana to rent a parking space. This should be a formal agreement, in writing, signed and countersigned, for a specific car and VIN, offering more tangible proof of your car’s connection to Montana. It can be in perpetuity and for a nominal sum if you can make that work.
  • Having evidence of frequent travel to Montana.
• What About U-Haul and other commercial vehicles? There’s plenty of locations in California for instance but NONE of the trucks have California plates or registrations!
  • Well, based on the International Registration Plan (IRP), a cooperative agreement established among the states and provinces of the United States and Canada in the early 1970s, vehicles operated by U-Haul are designated as commercial vehicles. These vehicles are licensed and registered in accordance with the IRP, which facilitates the apportionment and distribution of vehicle registration fees among the jurisdictions based on the total distance operated in each. U-Haul is subject to the payment of registration fees at a rate significantly higher than that imposed on non-commercial or personal vehicles.

The How-To’s of Registering

To register a car in Montana, you’d essentially need to fill out some forms and do the following:

Open LLC in Montana (Bennett Law in Missoula is one of many choices, for example), with you as the owner or partner. The car would be obviously purchased in said LLC’s name. Typically the process involves selecting a business name, filing Articles of Organization, appointing a registered agent in Montana, obtaining an Employer Identification Number (EIN), and optionally creating an operating agreement (all things your law firm will do for you in a matter of minutes).

Then you can simply drive the car as named driver on the registration of the company-owned car, or what some opt to do is create a contract for an auto rental (think long-term exotic car rental) where you as a driver are renting the car from the company. This creates different (sometimes beneficial) tax situations, as well as gives you an easier “out” if a police officers wants to challenge your claim.

Other things you’d need:

1. Proof of Ownership: Typically, a car title.
2. Proof of Insurance: Montana requires minimum liability insurance.
3. Valid Identification: Such as a driver’s license.
4. Payment of Fees: Including registration fees, which vary based on the car’s age, type, and other factors.

Costs Involved

• Setting up an LLC in Montana might cost around $1,000 and can be completed relatively quickly. The exact fees and annual costs can vary depending on the car’s value.

Re-cap

Registering a car in Montana through an LLC is a legal option that offers financial and other advantages. However, it’s crucial to consider the implications related to financing, insurance, and legal compliance in both Montana and your home state. At any rate, we’d highly recommend you talk with an attorney, and careful planning and understanding of the rules to ensure everything is in order.