Overview
Introduction
For years, wealthy vehicle customers have avoided state sales taxes by registering cars through shell LLCs in Montana, which has no general sales tax. That era ended, or at least got put on life support, when in February 2026 the California Attorney General filed a fifty-seven-count felony complaint against fourteen defendants—including the General Manager of a luxury dealership group—charging conspiracy, tax fraud, perjury, and money laundering tied to Montana LLC registrations.[1] This article explains the scheme, maps the enforcement landscape and identifies the specific concerns that dealer involvement raises for vehicle manufacturers.
The Montana Loophole
Montana charges no general sales tax. Its law lets anyone, regardless of where they live, form an LLC in the state[2] and register a vehicle in that entity’s name.[3] The playbook is simple: a customer in a high-tax state creates a Montana LLC, titles the vehicle to it, and registers it in Montana—then drives the car every day at home. On a $1.5 million vehicle in California, the customer avoids about $150,000 in sales tax.
The numbers tell the story. Montana registered 3,679,831 vehicles in 2024—over three vehicles per Montana’s 1.1 million residents. Former Montana revenue director Dan Bucks estimates that owners operate more than 600,000 of those vehicles in other states.[4]
The San Francisco Indictment
The complaint in People v. Dhaliwal, filed February 23, 2026, names fourteen defendants in five categories: a transport and vehicle documentation coordinator (Dhaliwal), dealership management (the General Manager of a group holding a range of high end franchises located in the Bay Area), dealership employees, customers, and shell entities that facilitated the transactions.[5] Prosecutors charge fifty-seven felony counts: conspiracy, filing false sales tax returns, failing to file use tax returns, perjury by declaration, and money laundering. The alleged scheme ran from January 2022 through August 2023 and is alleged to have evaded millions in California tax on several elite, ultra-high-performance or sports brand vehicles.
Why This Is a Manufacturer Concern
Dealer participation in the Montana Loophole affects manufacturers in several ways.
- Brand and dealer reputation. The mere filing of a felony tax-evasion case against a dealership likely damages every brand that dealership represents. Moreover, the dealer’s reputation is damaged, and because dealers are the point of sale for manufacturers, damage to their reputation harms their ability to sell the manufacturer’s products.
- Operational disruption, financial strain, and license risk. Criminal investigations, civil audits, and the management distraction they bring can hobble a dealer’s day-to-day operations. Tax liability plus penalties of up to 50% drain capital the dealer needs for facilities, staffing, maintaining financing, and operations generally. Moreover, criminal charges can put the dealer’s license at stake—and a dealer facing revocation will not invest in its business for fear that the investment could be lost.
- Captive finance and collateral risk. State authorities can seize vehicles caught up in the “Montana LLC” fraud scheme. When a manufacturer's captive finance arm funds the purchase of such vehicles, a criminal seizure strips the lender of its collateral — and the Dhaliwal complaint confirms that four vehicles carried active liens at the time of prosecution. A lender that perfected its security interest at purchase will generally hold priority over the state's tax lien and retain its interest through forfeiture proceedings. But priority is not automatic: the lender must affirmatively assert its claim, and a lender shown to have had actual knowledge of the scheme forfeits that priority entirely. The cost and disruption of litigation, including having collateral impounded for the duration of proceedings, are risks that legal priority alone does not eliminate.[6]
Conclusion
The Montana Loophole is no longer a gray-area tax strategy that regulators tolerate. Multiple states treat it as a criminal enforcement priority, and the indictment involving several San Francisco dealerships shows that prosecutors will reach dealership management—not just customers. For manufacturers, dealer participation creates a cluster of risks: reputational damage, operational disruption, financial drain from penalties and back taxes, threats to dealer licenses and exposure for captive finance arms. Manufacturers should assess their dealer network exposure and decide what steps, if any, their circumstances warrant.
DISCLAIMER: This article provides general information only and does not constitute legal advice.
[1]People v. Harminder Singh Dhaliwal, Case No. 26FE003384, Sacramento County Superior Court, Felony Complaint, filed February 23, 2026.
[2]Mont. Code Ann. § 35-8-201.
[3]Mont. Code Ann. § 61-3-303(1).
[4]NBC Montana, “Out-of-state vehicle owners use Montana LLCs to dodge taxes,” August 13, 2025.
[5]People v. Dhaliwal, supra note 1.
[6]SentiLink, “The Montana Loophole Is Closing. Are Lenders Holding the Bag?,” 2026.
