10 Strangest Ways States Tax You (And Don’t)

MONTANA: CAR REGISTRATION

You don’t have to be a car nut to wonder why exotic cars often have Montana license plates. What’s going on? Did Montana mint a bunch of new oil billionaires?

Actually, chances are good the owner of that Ferrari or Bugatti doesn’t live in Montana. Heck, the car’s tires may never have even touched Big Sky blacktop. What’s happening here is an artful dodge meant to circumvent sales taxes and registration fees in high-tax states, such as New York and California, as well as the annual personal property taxes of some states, such as Virginia.

Imagine you’re in the market for a $500,000 car. (Go on. It’s a fantasy.) The sales tax alone on that car in New York would be about $41,000. Guess what Montana doesn’t have? A sales tax.

There are other states that don’t have a sales tax, but Montana doesn’t have any sort of car inspection, either. That’s given rise to a cottage industry of firms that will create a limited liability company that technically owns your car and registers it with the state of Montana.

Is this legal? Montana doesn’t seem to mind the revenue, but there could be real implications for getting car insurance—plus, your home state may come looking for you. First-world problems, indeed.

KANSAS: TAXING THE WEAK STUFF

The Sunflower State is among a bevy of jurisdictions that allows sale of lower-alcohol beer (the term of art is “cereal malt beverage”) in convenience and grocery stores.

But Kansas also taxes “3.2” beer differently—and there’s the rub. At a liquor store, all products, including, say, a conventional six-pack of Budweiser (with 5% alcohol by volume), are taxed at a special rate of 8%. At the convenience store down the street, however, ordinary sales tax is levied on the lower-alcohol, cereal malt beverage bottle of Bud. In Kansas, where states, counties and local municipalities can all levy sales taxes, that often ends up being more than the 8% alcohol tax. In Pomona, Kans., for example, the effective rate on the weaker “beer” would be 10%. Go figure.