The Expert Podcast

All right. So, today we're going to talk about the infamous Montana LLC loophole that lots of people are talking about. This has been going on for almost a decade now where there are people that have title problems with their car or even without a title problem. And they're going to title it and register in the state of Montana under an LLC to avoid a couple things. They're going to avoid having the title paperwork done in their state. They're also going to avoid sales tax and they're going to avoid things like inspections. So, we're going to take a look at the process, how it works, what the pros and cons are, and is it something that could get you into trouble?

So, according to Google AI, the Montana LLC loophole is a legal strategy where individuals, often those in states with high sales taxes, form a Montana-based LLC or corporation to purchase vehicles. This allows them to avoid sales taxes and potentially other fees. So in the first paragraph, it says that the primary reason for doing this is to avoid taxes because if you are registering in Montana, the same process you would have to go through in Montana, you could do in your state. Montana doesn't make anything easier or cheaper as far as a bill of sale versus a title. You have to have the same paperwork. The only advantage is sales tax and inspection.

The other question that comes up is why do you have to form an LLC? Why can't you just put it in your name? Well, the reason why is because the states, all 50 states are not allowed to give titles to people who are not residents. They can only title vehicles to people who have a residency there. So, if you don't have a residence there, and I don't just mean your cousin's address, you have to have something that belongs to you. They can't give you a title. So, you have to form an LLC, have that expense, you have to wait for the LLC to be issued, then you have to put the title in that LLC name, then you have to get a license plate and registration.

So, it may seem like a good idea if you think you're trying to solve paperwork problems. However, if all you're trying to do is solve a paperwork problem, you could do the exact same process in your state without forming an LLC. You're going to have to jump through some hoops. The DMV doesn't give titles when you don't have the old title. So, if you bought your vehicle and you didn't get one of these when you bought it, a title from the old seller or a proper title, then you're going to have to do a bunch of paperwork. Here's all the paperwork. How we do it, it's in a folder. Here's all the paperwork. If you're going to do the Montana LLC, you still have to do that paperwork. The only advantage is you will not have to pay sales tax because Montana is a state that doesn't charge tax and they also have very limited or non-existent inspection.

So, you might think, hey, I'm going to get away with it. It's legal, right? Well, it's legal in Montana. Here's the problem. Every state has a rule that says if you are a resident of the state and you're operating the vehicle in that state, you have to pay tax. It doesn't matter where you bought it, where it's titled, where it's registered. Your state has these rules. And here's a good description of it. This is from our friends at Hagerty. We've worked with them quite a bit. They explain this loophole. And Montana plates have gotten popular and notorious. States are cracking down. People with Montana plates are getting in trouble coast to coast.
How are you getting in trouble? Well, if you are in a state that has tax, which is every other state except for a few like Oregon and Alaska, if you purchase your vehicle and title it in another state and you're driving around with Montana plates and you get pulled over, they're going to look and see who's driving the vehicle. They're going to look to see who's the principal of the LLC. And if they find that you have evaded taxes, they're going to charge you the back taxes, penalties, interest, and they can seize the vehicle. How are they doing that? Well, they're doing that because once a vehicle is within the borders of another state for 30 days, it legally needs to register and entitle their fees and all. If you live, buy, and keep a vehicle in the state with tax, then sales tax must be paid. End of story.

So, it's legal to do this in Montana. Montana doesn't care. They're getting your fees, but your state, it's not legal. If you use a Montana LLC and drive your car on Montana plates, your state has missed out on tax revenue, and they're going to come and crack down. How are they going to find you? Well, the way they're going to find you is they are going to use what's called ALPR, automated license plate readers. There are little cameras all over the place on street signs, and parking lots, on Ubers, on police cars, and they're looking at all the plates that go by. And if they see a Montana plate go by the same place two or three times, they're going to say, "Hey, this vehicle is not just somebody visiting our state from Montana." Anna on vacation. This must be somebody who used this scam because they know about it. It's not like it's a big secret. And they're going to red flag that vehicle. They're going to pull you over. They're going to see it's an LLC and they'll turn it in for an investigation.

Major crackdowns on owners of Montana plates slapped with major fines back taxes. Attorney author of legal files at sports car market. It's a mistake to say the risk is getting caught is low. The risk of using the Montana loophole is getting higher. How do we know this? It says in the article. First of all, the scheme is well known. The other thing is we attend a conference call with representatives from the DMVs from all 50 states. Every month they have a conference call. We hear what they say. They all know about this. Their revenue departments have a task force that are directing local agencies, dealerships, police departments to look for Montana plates. They can run the Montana plate from their police car. If it comes back to an LLC, they can pull you over, check your ID, ask you questions, and they can turn it in for prosecution.

In fact, now some states are opening up a hotline that anyone can report out of state plates to the authorities. California, Colorado, Arizona, many other states have it. In fact, in California, there was an owner had a California investigator and two deputies show up their house with a search warrant because they discovered this person had the vehicle. They told him he was violating California law requiring him to register his car in the state and pay tax. Remember, it's not just a sales tax. It's a use tax. So, you might say, "Well, I bought it out of state." Doesn't matter. If you use it in your state, you have to pay tax. Expect penalties and charges. Many other residents are under investigation for the same thing. There's a strong interest in combating Montana licensed cars. Enforcement is more common than we realize. People don't talk about it when they get caught. You can do a Google search.

Montana LLC. Here's one from Utah. Utah saves thousands in tax by registering cars in Montana. Is it legal? They interviewed the person who works for the government and Jason Gardner of the Utah DMV says the law is clear. It creates illusion they are domiciled in another state. The law doesn't. The law specifically says that if a business entity has a vehicle that operates primarily within Utah, the same standard applies. That business is deemed to be domiciled for purpose of registration. So it doesn't matter where you say, "Oh, my company's in Montana." They're going to say if you're using it, look, even if FedEx has a vehicle titled in some other state and they use it in your state, they have to pay tax in your state. There's no get out of jail free card for this.

So be aware. It might seem tempting and it might seem like you're getting away with something, but the law says that if you or your Montana LLC buys a car mostly used and resides in Utah or your state, the tax should be paid and registered there. The law is frequently broken, a lot of money being lost, and it's something where they're cracking down. The other side is emissions testing. Montana has no emissions testing. So, states that have strict emissions also sometimes people will do it in Montana because they don't want to pass smog and the states don't like that either. It's not worth the hassle.

The other part of it is insurance. When you buy insurance for your vehicle, you have to tell your insurance company where the vehicle is domiciled. If you tell your insurance company it's domiciled in Montana, they're going to give you a Montana insurance card. Okay. What if you're driving it in, let's say, Texas? You're driving it. You get in an accident. You're going to file a claim. Your insurance company's going to ask you why were you in Texas? You can't tell them you're on vacation. If you have a Texas license, they're going to do an investigation. They're going to deny your claim because they're going to say, "You lied to us about where the car is." If you tell them it's in Texas, they're going to give you a Texas insurance card. Now, you're going to have a Texas insurance card on a Montana vehicle. That's going to get you into trouble with the government because they're going to see that you're scamming them.

So, this is a very, very serious thing. I know it sounds tempting. You know, years ago, there was the whole Vermont loophole, which that had its own issues and the states cracked down on that. But this is something where it's more serious because there's tax evasion going on and emissions evasion. And I can tell you right now, states are cracking down on this. They're using these ALPRs, these license plate readers that are all over the place. There's big brother cameras everywhere, and they are catching people left and right. Question is, do you want to do it?

If it's a matter of the paperwork, don't worry. The paperwork you have to do for Montana is the same you would have to do for your state. You can get a title from your own state. Little bit more paperwork than not having a title, but you can do it. If you're doing it because you don't want to pay tax, that's a whole another issue. You have to decide, is it worth saving, you know, $20,000 car, 7% tax, 1,500 bucks, right? Do you want to save that money and put it at risk? That's up to you. But they're not going to just charge you the back taxes. They're going to charge you interest, penalties. Sometimes it's a criminal record because it's a violation. You have to decide if that's all worth it. Either way, you can check out our website for options on how to get a title without having to violate your state laws. If you found this video helpful, be sure to click on other videos on our channel to see if there's further information that could give you more insight into resolving your particular situation.