KSL INVESTIGATES

Utahns save thousands in sales tax by registering new cars in Montana. But is it legal?

Feb 20, 2023, 10:11 PM | Updated: Feb 21, 2023, 8:24 am

SALT LAKE CITY — Ever play the license plate game with the kids, where you count the out-of-state plates?

Well, we did along the Wasatch Front, and spotted more than a few Montana plates. Sure, those vehicles could belong to folks in Kalispell, Billings or Deer Lodge. But not every plate we spotted may be on the up and up.

For some, it may be a loophole to avoid taxes.

Skipping sales tax

“Montana actually does not have sales tax on vehicles,” said Jayce Watkins, an Uber driver who registered two new vehicles he bought in Utah with Montana plates.

“This is a money saver, this is all about money,” Watkins said.

Watkins said he paid $125,000 in Utah for both cars. In Salt Lake County, the combined state, county, and local sales tax rate is 7.25%. Multiply $125,000 by 7.25% and the tax total comes to $9,063. He said the Montana registration cost him $400 to $600 more for the vehicles combined than what he would have paid in Utah, but he still saved well over $8,000.

Uber driver Jayce Watkins says getting Montana plates for his two new vehicles saved him over $8,000.

“I work this system nicely,” Watkins said.

He has since lost one car in a crash and registered the other in Utah.

Shell companies and other loopholes

“C’mon – that’s cheating! Isn’t that cheating?” we challenged Watkins.

“You know what? If the shoe fits,” he replied.

Watkins argued he followed Montana law and believes he did nothing wrong.

“I did have a residence (in Montana). I had legal paperwork, went into the DMV, showed them my lease, they let me register a vehicle,” Watkins explained.

Watkins tells KSL’s Matt Gephardt he had a legal residence in Montana. Many others will create an LLC with a Montana address to obtain Montana plates.

But not everyone who pulls this maneuver has a place in Montana. Some open a shell company, an LLC in Montana. In fact, we found a bunch of companies that will do that for you. Then your Montana LLC buys the car, registers it, and you drive it around Utah as a company car.

“The tax laws and tax loopholes out there are so ginormous,” Watkins said.

But is any loophole Utahns use to get Montana plates legal?

Jason Gardner of Utah’s Motor Vehicle Enforcement Division says the law is clear. “It creates the illusion that they are actually domiciled in another state, however, the law doesn’t.”

“The law specifically says that if a business entity has a vehicle and operates that vehicle primarily within Utah, the same standard applies,” he explained. “That business entity is deemed to be a domicile area of Utah or resident of Utah for purposes of registration as well.”

Jason Gardner of Utah’s Motor Vehicle Enforcement Division says the law states any resident or business entity that operates and garages a vehicle mainly in Utah should register that vehicle in Utah.

Alright, maybe not clear, unless you speak fluent legalese. Basically, the Utah law says if you or your Montana LLC buys a car that is mostly used and resides in Utah, the sales tax should be paid in Utah and it should be registered here, too.

Gardner admits that it is a law that is frequently broken.

“There’s a lot of money that’s being lost to the state from the sales tax that would otherwise be charged on these vehicles,” he said.

Not just about sales tax

And it’s not always just about avoiding sales tax.

You will typically see Montana plates on higher-end cars, big expensive trucks, or RVs, but not always. We spotted an older model Toyota RAV 4 with a Montana plate enclosed in a license plate frame from a Utah auto dealership.

Because Montana has no emissions testing, a car bought in Murray can be plated 530 miles away in Missoula without ever leaving Utah.

The lack of emissions testing is another reason why some Utah drivers get Montana plates. A car deemed too polluting for the Utah counties which require emissions can skip the smog tests but still get registered through the Montana DMV.

Montana has no physical inspection requirement for vehicles, so a car can get Montana plates without ever having to leave Utah.

And there is another law potentially being broken. Once considered a Utah resident, you have 60 days to get Utah plates.

Get caught breaking Utah’s registration law and you might wish you really were in Montana.

“If a person is found… to have circumvented the Utah laws on these motor vehicle registration laws, for sales tax, they will be subject to all the back sales tax and 100% penalty of the sales tax amount that wasn’t paid,” Gardner said. “So basically, double sales tax.”

Enforcement roadblocks

But the government cannot pinpoint how big this scheme is, because it is very challenging to enforce.

“These are people that have no interaction with the (Utah) DMV, because by the very nature, they’re interacting with Montana DMV, not us,” Gardner said. “And so, we don’t really know what’s out there.”

Plus, how is a traffic cop to know if a car he or she spots with Montana plates is mostly used in Utah, or a bona fide Montanan just driving through?

“One hundred percent. That is exactly one of the challenges we face in enforcing this law,” Gardner said.

As for Jayce Watkins, he does not believe enforcement is the answer.

“Get them to change the sales tax,” he told us, saying with the average car selling for $50,000, the sales taxes in Utah are just way too high.

“These vehicles are our second greatest expense, and for some, their greatest expense. We don’t tax houses other than property taxes. So, why should we not just do a property tax on this instead of sales tax?” he argued.

Insurance implications

Many insurers are not fans of drivers getting out-of-state plates. Some might refuse to pay a claim if they find the car resides somewhere other than what is listed in the policy.

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Utahns save thousands in sales tax by registering new cars in Montana. But is it legal?