What Is A 'Luxury Vehicle,' And How Should I Register One In Montana?
Thinking of Registering Your Luxury Car in Montana? Here's What You Need to Know
Back in the early days of out-of-state vehicle registrations, the OGs of the game did it in Montana, and they did it for one reason: zero sales taxes in Montana.
And you have probably guessed, or already know, exactly what kind of vehicle owner finds this feature attractive: people with high-dollar machines. Now, back then, it was not exclusively Californians who did this, but considering California has the highest concentration of millionaires in the nation (Cali has more millionaires than South Dakota has residents), so it was fair to figure a lot of them were from Cali.
The original luxury vehicles in question were almost exclusively supercars, i.e., Ferraris, Lambos, etc. But in the years since this has passed, the definition has broadened, and now it includes high-end RVs. Of course, for prices closing in on $100k, pickups are closing the gap on Montana’s luxury vehicle fees.
So let’s take a look at what luxury taxes and fees are, why Montana has them, and if any other states impose them.
What Is A Luxury Tax?
First, we need to make a distinction: the Montana luxury vehicle fee is just that, a fee. A fee differs from a tax as it doesn’t have to pass through the legislative process. So, the Montana fee is a fee by legal definition.
Now that we have made that distinction let’s look at Investopedia for a full-blown definition of luxury taxes.
Investopedia says, “A luxury tax is a sales tax or surcharge levied only on certain products or services deemed non-essential or accessible only to the super-wealthy.”
Sounds kinda like a ripoff to me, but apparently, there are many states who find this tactic acceptable.
Most taxes are considered controversial by at least half of the population, but some draw more attention than others. Luxury taxes are a polarizing topic, though. Sales taxes on food and basic goods get the side eye of many because they are disproportionately hard on poor people.
But most people don’t have the same scrutiny toward high earners. Luxury goods are low-hanging fruit to tax, and the low-income segments of the population usually support these taxes.
There are basically two types of luxury taxes that are commonly assessed:
“Sin taxes.” These are on booze, smokes, lottery tickets, etc. These are taxes imposed on items that most average folks purchase. The benevolent government is discouraging the use of these products, but mostly they are raking in cash from these commodities.
In this instance, we are talking about taxes on items that the average consumer cannot afford—high-ticket cars, luxury RVs, yachts, private airplanes, etc.
Since these affect a small part of the population, neither is regularly opposed.
What Is Considered A Luxury Vehicle For Tax Purposes?
Legal limitations exist for what is defined as a luxury car; it is not just an idea.
Here is a great resource on the definition of a luxury car.
And Investopedia offers a guide on the tax implications of luxury cars.
What does it mean to the layman?
Luxury cars are to cars what a Rolex is to watches. They don’t get you from A to B any better (although they may get you there faster). A luxury vehicle's features are solely for the operator's enjoyment and relative comfort.
However, they become a tax target because these amenities increase prices. When the prices go up, so do the taxes.
When Do You Pay Luxury Tax On A Vehicle?
Luxury vehicles are taxed like any other vehicle in terms of sales tax. If a vehicle sales tax rate is seven percent, it is seven percent regardless of vehicle type. If it’s ten percent, then it’s ten percent on a $2,000 Tercel or a $200,000 Porsche.
Because of this sliding scale of inclusion, so many luxury vehicle owners go the Montana LLC route with their vehicle registration.
Let’s look at what it would mean for me personally.
In Shawnee County, Kansas, my home county, the maximum sales tax rate is an incredibly high 11.35%. Good thing our roads are perfect.
Let’s say I were to buy a high-end motorhome. I personally am much more likely to buy that than a luxury or supercar.
A nicely equipped pusher motorhome easily runs $300,000+ new.
Now, in the highest-taxed areas of my county, the tax bill due upon registration would run a frosty $34,050 just in sales tax.
There are some tax breaks for luxury cars at the federal level, which are detailed here.
Basically, the luxury car can be written off as a working asset to certain degrees, as can the asset's depreciation.
But these tax breaks have nothing at all to do with local and state sales taxes. You must pay your sales tax regardless of the federal tax situation.
Of course, you can always form an LLC and register your motorhome or luxury car in Montana, which has no sales tax.
They do, however, impose a one-time fee for each type of luxury vehicle:
A one-time fee of $825 for supercars and luxury cars valued over $150,000.
A one-time fee of $800 for luxury RVs valued over $300,000.
Just For Fun: What About Luxury Armored Vehicles?
As much as we would love to talk about sales tax breaks for luxury armored vehicles, we just can’t find any.
The only exemptions are probably federal since companies usually use those for moving important passengers in dangerous places. But most likely, those companies already know exactly how and where to register their armored luxury transports to maximize tax savings. If not, they can always start here!
Do Any Other States Have A Luxury Tax or Fee?
First, a caveat: state and local laws are impossible for us to track down in their entirety. We cannot know what one state does, especially one county or city. We strongly suggest the Montana LLC route if you are looking at luxury vehicles. Guaranteed not to pay sales taxes that way.
Here is one catch: you can only do the Montana LLC option if you own the vehicle outright, i.e., no liens. But there are options if you have a lien to refinance or finance the first time but hold the title outright.
So, we won’t touch on this topic because we recommend not dealing with your local tax office altogether.
Parting Thoughts
When asking what a luxury vehicle is, there aren’t a lot of concrete answers beyond common knowledge. But with pickup trucks routinely nearing one hundred grand, anything is starting to look like a luxury vehicle.
Whether you are rolling in a purpose-designed luxury car or a new Ram that is priced like a luxury car, we’ve got you covered with our Montana LLC registration program. Got a loan on it that you need to refinance? No problem. Work with our trusted partners at LightStream to refinance it.
Resources
Writing Off Luxury Vehicles Like A Tax Professional
IRS Announces 2022 Automobile Depreciation Deduction Limits and Inclusion Amounts
2022 Luxury Auto Depreciation Limits, Tables and Explanations