California cracks down on out-of-state shell companies used to dodge luxury-car taxes
Governor Gavin Newsom signed Senate Bill 1406, targeting shell companies that let California buyers register expensive cars in Montana to avoid state sales tax.
Governor Gavin Newsom approved Senate Bill 1406, a package designed to stop California residents from using out-of-state shell companies to register luxury automobiles in tax-free states such as Montana. The legislation broadens the residency test, imposing tax obligations on any LLC that includes a California resident, even if the company lacks a genuine business purpose or physical presence outside the state. It also authorizes the state tax agency to pursue individual members of dubious entities for unpaid sales tax.
Officials estimate the loophole has deprived California of millions of dollars annually, and the Department of Justice recently indicted 14 dealers and buyers for concealing purchases worth more than $20 million and evading roughly $1.8 million in taxes. The law took effect immediately, giving authorities new tools to identify and penalize shell companies used in these schemes.
Why it matters
The law could recover millions in lost tax revenue and curb tax-avoidance schemes involving high-value vehicles.
How the sides frame it
HIGH AGREEMENTBoth camps report the passage of Senate Bill 1406 to close the Montana LLC loophole, but left-leaning coverage frames it as a necessary crackdown on tax-avoidance costing the state millions, while right-leaning coverage highlights the affluent buyers affected and stresses personal liability and potential revenue for services.
LEFT
Portrays the legislation as a necessary crackdown on tax-avoidance schemes that cost the state millions
RIGHT
Casts the bill as a ban on a loophole used by wealthy car buyers, emphasizing personal liability and revenue benefits
The left emphasises
- stop California residents from using out-of-state shell companies
- loophole has deprived California of millions of dollars annually
- Department of Justice indictment of dealers and buyers
The right emphasises
- affluent car buyers registering in Montana to evade sales tax
- law can hold officers personally responsible and treat non-payment as criminal
- funds could support road repairs and other services
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