Senate Greenlights McNerney’s Bill to Close ‘Montana Tax Loophole’ that Costs CA Millions

The California state Senate has approved Sen. Jerry McNerney’s SB 1406, legislation that would close the so-called “Montana Loophole,” which costs California approximately $20 million a year in lost tax revenue.

SB 1406 would strengthen state law prohibiting tax scams in which California residents create empty shell companies to buy exotic luxury cars or recreational vehicles in Montana to avoid paying California sales taxes and vehicle license fees.

“The Montana Loophole is widening, with increasing numbers of tax evaders creating phony shell companies so they can avoid paying sales taxes luxury vehicles such as Ferraris, Porsches, and pricey RVs, costing California tens of millions in revenue,” said Sen. McNerney, D-Pleasanton, chair of the Senate Revenue and Taxation Committee. “With its passage of SB 1406, the Senate has sent a clear message: It’s time to close the Montana Loophole for good and restore much-needed state revenues to fill potholes and make other essential road repairs.”

The Senate approved SB 1406 on a 31-8 vote. The bill now goes to the state Assembly for consideration.

Under the Montana Loophole, California tax evaders create phony shell companies to purchase luxury cars and expensive RVs in Montana, which has no statewide sales tax or vehicle registration fees. 

SB 1406 would close the loophole by making it easier to collect unpaid taxes from people who create these empty shell companies. For more on SB 1406, click here.

Sen. Jerry McNerney is chair of the Senate Revenue and Taxation Committee, and his 5th Senate District includes all of San Joaquin County and Alameda County’s Tri-Valley.