Colorado DMV Probes Montana Loophole Tax Evasion

State regulators are investigating vehicle owners who register cars in Montana to avoid Colorado registration fees and taxes.

Updated on Nov. 14, 2026 in Automotive — General

Colorado DMV Probes Montana Loophole Tax Evasion

Live Poll

Should people who register cars out of state to avoid Colorado taxes face penalties?

The Colorado Division of Motor Vehicles announced on November 9 that it will investigate the so-called Montana Loophole, a practice in which Colorado residents form an LLC in Montana or another state and register vehicles there to avoid Colorado taxes. The agency is issuing compliance notices to affected vehicle owners.

Why it matters

The investigation targets a practice that allegedly lets residents dodge some of the highest vehicle registration fees in the nation. Residents who used the arrangement could face back taxes, late fees and, if they do not comply, possible criminal prosecution in Colorado.

The Colorado DMV requires residents to register vehicles in the state within 90 days of establishing residency. The total number of vehicles affected and the revenue at stake have not been disclosed.

The players

Colorado Division of Motor Vehicles

The Colorado Division of Motor Vehicles is the state agency responsible for vehicle registration, titling and licensing for drivers across Colorado.

The details

Under the practice, a Colorado resident creates an LLC in Montana or another state and files a vehicle registration there. Any car registered out of state that is primarily garaged and operated in Colorado with the intent of avoiding Colorado taxes violates state law, according to the DMV. Owners who used the loophole must respond to the warning letter, register their vehicles and pay applicable back taxes, specific ownership taxes and late fees.

November 9, 2026: Colorado DMV announces investigation into the Montana Loophole.
Within 90 days of establishing Colorado residency: vehicles must be registered in the state.

Roadmap

The investigation enforces Colorado's existing 90-day vehicle registration requirement against an out-of-state workaround that lets owners sidestep state fees. It signals that state regulators are willing to pursue entity-based registration schemes that shift tax liability away from residents.

Colorado residents who registered vehicles in Montana or another state to avoid Colorado fees may need to respond to a DMV warning letter. Owners can resolve the matter by registering their vehicles in Colorado and paying back taxes and late fees.

The takeaway

Colorado residents who live and garage a vehicle in the state should register it in Colorado within 90 days of establishing residency, regardless of where an LLC is formed. Checking registration rules before filing out of state can prevent back taxes and late fees.