What’s With The Lambo with Montana License Plates?

Tax avoidance and tax evasion — there’s a difference. 

In “The Firm,” one of my favorite movies, Gene Hackman’s character, the veteran lawyer Avery Tolar, warns his hungry-for-success protegee Mitch (played by Tom Cruise): "It's not a matter of ethics, Mitch. It's a matter of law. There's a big difference between tax avoidance, which is perfectly legal, and tax evasion, which will get you thrown in jail." Avoiding unnecessary taxes through planning is one thing, but evading is an entirely different matter.

The latest “strategy” to avoid taxes that’s been making the social media rounds is the “Montana LLC Tax Hack.” Like many of my clients, you might have questions about what this entails (note: some of my clients have unfortunately jumped onto this without asking questions). 

The idea behind this hack is that you form an LLC in Montana, purchase a vehicle (often an ultra-expensive luxury or exotic car or an RV), register it in Montana, and avoid sales tax. Imagine this scenario for a Texas buyer: the Lone Star State’s sales tax rate is 6.25%, so a buyer pondering the purchase of a Lamborghini Revuelto (the 2024 model lists at a cool $608K) could “save” quite a bit. 

If you do a Google search, you will find several websites that (for a fee) will set up your Montanna LLC, act as your presence in the state, and help you with vehicle registration. They tout the tax-free benefits and anonymity of a Montana LLC. 

There are several problems with this approach. The most severe issue is that your home state could consider this illegal or fraudulent, subjecting you to a wide range of penalties and legal issues. Other issues are higher insurance premiums and the possibility that insurance claims could be denied. 

It’s not simply a “sales tax” issue. All states that have a sales tax also have a use tax, often presented as a Sales & Use Tax. Use Tax is defined as a tax on the storage, use, or consumption of a taxable item or service on which no sales tax has been paid. Use tax is a complementary or compensating tax to the sales tax and does not apply if the sales tax was charged. If you didn’t pay sales tax, then you likely owe use tax.

Often, people think they are clever and can outsmart the government. While I’m sure this happens, in the case of the Montana LLC tax hack, the states are on to it. In 2010, Massachusetts started sending police into RV parks to check for Montana plates. California has implemented similar programs. 

It will be interesting to see if states compel FinCEN to provide information on the actual owners of LLCs due to the filing of BOI reporting. I always recommend that everyone work with a qualified tax professional and do not regard advice from social media as being 100% truth. There are often kernels of truth, but taxes are complicated and nuanced. 

Avery Tolar would concur.