Coloradans looking to avoid high vehicle registration fees have increasingly turned to what’s known as the “Montana loophole” — a strategy that surfaced recently at a luxury car event near the Cherry Creek Mall.

Here’s how it works.

A Colorado resident buys a high-end vehicle — anything from a large recreational vehicle to a supercar like a 2022 McLaren 765LT Spider, which was recently listed in Boulder for more than $1 million. The buyer then forms a limited liability company in Montana, a service some firms advertise for about $1,000, and registers the vehicle under that LLC.

The vehicle is still owned, maintained and driven in Colorado, meaning it uses state roads and services here. But because it’s registered to an out-of-state LLC, Colorado receives none of the associated registration revenue or fees.

Under certain conditions, the avoided taxes can include sales tax totaling tens of thousands of dollars.

Montana does not charge sales tax, so purchasing a vehicle there and then bringing it back to Colorado can significantly reduce the buyer’s costs. For a $1 million car in Boulder, where the state sales tax is 2.9% and the county rate is 1.335%, the avoided sales tax would total more than $42,000.

Montana offers additional tax advantages even when the vehicle is purchased in Colorado but registered out of state. The state does not require emissions or safety inspections, and registration for a new vehicle — regardless of its price — can cost as little as $217. For vehicles more than 11 years old, Montana also issues permanent tags, eliminating annual registration fees altogether.

Colorado Politics reviewed the Colorado Division of Motor Vehicles’ online calculator to estimate registration costs — including ownership taxes — for a vehicle valued at $1 million. The total exceeded $18,000. The DMV noted that final costs may be higher depending on the municipality.

For Colorado residents using the Montana loophole, the taxes avoided are revenues the state does not collect. The Department of Revenue said it does not track how much Colorado loses through this practice.

State law is straightforward: new residents have 90 days to register a vehicle brought into Colorado, while current residents get 60 days. Enforcement can be uneven — as many drivers have noted, expired temporary tags are common — but the requirement itself is clear.

The key factor is where the vehicle is maintained and operated, according to Benjamin Whittier of the Colorado Division of Motor Vehicles. If it is kept at a Colorado residence and driven in the state, it must be registered in Colorado.

The penalties for ignoring the law? It’s a misdemeanor to fail to register, with a $25 per month late fee, up to a maximum of $100. Back taxes can also be levied, including vehicle ownership taxes and fees. 

The state DMV said it hopes Coloradans will help by contacting the fraud investigation unit when they see these luxury vehicles with Montana plates owned by Colorado residents. 

In 2024, 285,000 vehicles were sold in Colorado, with sales valued at more than $11.6 billion, according to the Alliance for Automotive Innovation.  

Tax revenue on those vehicles reached $914 million, or about 5% of the total sales tax collected in Colorado in 2024, the alliance reported.

Among the cars in the million-dollar club are Porsche, Aston Martin, Bugatti, Lamborghini and McLaren. The latter two have dealerships in the Denver area.

A Google search showed many six- and seven-figure vehicles are available for sale in Colorado, either new or used.

Some Montana LLC services advise prospective customers to review their own state’s laws before registering a vehicle through an out-of-state company. Others, however, assert that the practice is legal in all 50 states.

The company website promoted at last month’s luxury car event tells prospective customers that, for a starting fee of $1,049, it will set up the Montana LLC, complete all required motor vehicle paperwork and register the vehicle. Once the registration is approved, the company said plates and documents are shipped out the next day.

The companies come with names like legaltags.com, AllDay$49Montana.com and others. 

According to the insurance company Hagerty, Montana has seen substantial growth in LLC registrations tied to vehicle ownership. In a 2024 report, Hagerty noted that Montana registered about 30,000 LLCs in 2021. By comparison, Oregon — with roughly four times Montana’s population — registered about 55,000 LLCs that same year.

The state, which has twice the number of cars than people, double the national average, gets the money from registrations for vehicles that will never cause wear and tear to Montana roads, the insurance agency said.

The Montana loophole is starting to gain attention with lawmakers and state officials.

Earlier this year, the California attorney general obtained a 56-count indictment against 14 individuals who used the Montana loophole in California. That included felony charges for conspiracy, filing false sales tax returns, failing to file tax returns, perjury and money laundering. 

Those 14 individuals purchased vehicles valued at about $20 million and, according to the indictment, allegedly avoided paying about $1.8 million in taxes.

Since 2023, the Montana loophole has been used to avoid paying taxes in California for about 2,500 vehicles.

Senate Bill 1406, sponsored by Sen. Jerry McNerney, D-San Joaquin County, would put an end to California residents using out-of-state LLCs to avoid paying vehicle registration and other taxes on luxury car purchases.

Senate Bill 1406 would also expand the state’s definition of who is a resident under state use tax law to include a shell company when at least one member of the business is a California resident.

It would also authorize the state’s tax authority to impose tax liabilities on individual members of the alleged shell company.

The proof of whether a company is a shell company, according to SB 1406, is that the company lacks a specific business activity or purpose, fails to maintain a physical location outside of California, has no employees or fails to file federal tax returns or state tax returns in a state other than California.

The bill has cleared the California Senate and is awaiting action from the state assembly’s appropriations committee, scheduled for August.

In Colorado, state Rep. Ava Flanell, R-Colorado Springs, has heard about the Montana loophole, though she has not committed to introducing legislation to address it.

House Speaker Pro Tem Andrew Boesenecker, D-Fort Collins, said he is worried about what the Montana loophole may be doing to the state’s bottom line.

“I would be deeply concerned about a situation where folks are evading tax law, especially on a purchase that is out of reach for the average Coloradan,” Boesenecker told Colorado Politics.

He plans to look into the issue, he said.