If you've been in any shop owner forum or watched car videos lately, you've probably heard about the “Montana LLC” trick. The pitch sounds simple: form an LLC in Montana, register your new vehicle under that company, and avoid the sales tax you would pay in your home state.
It is an idea that spreads fast because it feels clever. But as we have seen with clients and colleagues across the country, it is not as harmless as it sounds.
Jack and I talked about this on The Money Shift Podcast, and it is a topic that gets attention for good reason. You can also watch the video version below.
This strategy has been around for years, but social media has made it seem almost mainstream. The basic idea is to create a Montana LLC because the state has no sales tax, and use it to register your vehicle.
You do not need to live there. You do not even have to bring the vehicle to the state. Registered agents handle the paperwork for a small fee, and just like that, your $100,000 truck, RV, or sports car is registered in Montana without the $7,000 to $10,000 in sales tax you would normally owe.
On the surface, it looks clean. On paper, it is fast. But under the hood, there is a lot that can go wrong.
For shop owners who buy work trucks or service vehicles, avoiding sales tax can look like smart business. If you live in a high-tax state like California, New York, or Illinois, those savings can easily hit five figures.
And because Montana makes it easy to form an LLC remotely, the whole setup seems low risk. That's the trap.
This is the same logic people use before they get in trouble with “creative” payroll classifications or questionable write-offs. It is not the savings that matter; it's whether you can justify it when someone asks why.
The key issue is intent. If you genuinely operate a business in Montana, or you store and use the vehicle there for work, the registration could be legitimate.
But for most shop owners, there is no business purpose at all. The vehicle is purchased, stored, and driven in another state. That is when the setup crosses from tax planning into tax avoidance, and states have gotten aggressive about calling it out.
They look for things like:
When those dots connect, states can assess back taxes, interest, and penalties.
A lot of people assume this is an IRS issue, but the first agencies that get involved are usually state tax departments, DMVs, and insurance companies.
You might save ten grand up front, but you could lose ten times that once penalties or insurance issues hit.
The IRS does not usually chase state sales tax cases, but they do care when a setup creates inconsistencies on your federal return.
If you start claiming large depreciation or Section 179 deductions for a vehicle registered to an entity that does not actually operate, the IRS can flag it. They might question:
If it looks like a shell company used to disguise personal use, those deductions can be disallowed, and that becomes a federal issue you do not want.
This is where it hits home.
Shop owners often operate in multiple states, have fleets of vehicles, and take pride in running lean. That is exactly why these schemes look appealing. But I have seen firsthand what happens when states audit or insurers pull coverage.
Here is what can go wrong:
It is a short-term win that often turns into a long-term problem.
If your goal is simply to pay less tax on vehicles, there are smarter and legal options.
These strategies hold up under scrutiny and do not risk your insurance, license, or reputation.
Read our article: Unlock Big Savings with Depreciation and Amortization
Nobody likes paying taxes. But as a business owner, your goal is not to outsmart the system; it is to stay in business long enough to build wealth.
If you ever have to ask yourself, “Would this pass the sniff test?” it probably won't. The Montana LLC setup is a clever idea on the surface, but it is built on paper, not substance.
Spend that same energy working with your CPA on strategies that truly work. You'll sleep better, stay compliant, and still keep more of what you earn.
At Kaizen, we help shop owners make smart financial decisions that build profit and protect their business. If you are planning a major vehicle or equipment purchase, talk with your advisor first.
If you would like to talk through your specific situation, schedule a call with our team to see how we can help you plan the right way.
Explore the Kaizen Resource Center for practical guides, videos, and tools to help you run a more profitable, predictable shop.