Among the many different facets of collecting classic cars are two main qualities: the act is a passion and the cars are investments. Some classic cars fetch easily into the seven-figures, making them a steady investment but also a vast tax target.
You have undoubtedly heard of people registering classic cars in Montana, and even if you haven't, today we are going to explore the benefits as they relate to the tax burden that even a modest classic car collection can incur over time.
This is one of the many benefits of using our Montana LLC Service to keep your classic car collection safe from prying hands. There are others as well, like a lack of inspections and emissions testing, but today we are going to focus on the monetary element.
What Is a Classic Car Collection?
The question that we all ask is straightforward: what constitutes a collection? Does that even have a definite answer?
A collection can be a couple of cars or a massive garage filled with millions of dollars worth of classic metal. The actual number of cars is not specific, and it doesn’t matter. If you own classic cars at all, don’t hesitate to call what you are doing “collecting” and the cars themselves a collection.
Where Are The Biggest Collections Located?
The rules regarding automobile taxation vary widely depending on where the car is registered. So, where are the most extensive collections in the U.S. located? Let’s look at some of the most prominent collectors and see.
To be clear, we are not implying that these people endorse registering a classic car in Montana or even that they do it themselves. It's a deeply personal decision as to where your money goes, more specifically whether it stays in your pocket or goes to the state you’re in. But if you find yourself amassing a substantial car collection, especially one pushing the limits of your means, the option of registering those cars in Montana could offer substantial financial savings as illustrated by these examples.
Jay Leno’s Garage
Arguably the most famous collection of any celebrity and maybe the most famous private collection in the U.S., former talk show host Jay Leno owns a formidable collection of cars and motorcycles, pushing close to 350 total. Also, he hosts “Jay Leno’s Garage” on CNBC, showcasing his impressive collection and empire that has morphed into an extensive product line of cleaning and detail products.
The value for his collection? About $52 million by some accounts And where is it located? Sunny Burbank, California. Ouch. We have spoken openly about the California tax structure and registration horrors. A collection anywhere near that size would incur substantial tax burdens to say the least, not to mention the difficulty of registering cars that are not completely original.
Jerry Seinfeld’s Collection
Comedic genius Jerry Seinfeld was not a one-horse pony; not only did he pioneer one of the most successful and funny sitcoms of all time, but he is a genuine gearhead.
Sunk deep in the heart of Manhattan hides Seinfeld’s formidable collection of primarily Porsche vehicles. Overall, his collection is worth in the ballpark of $50 million to $150 million. Well then.
Since his home state is New York, another state rife with registration hurdles, we can only imagine what his tax bill looks like. However, we know that registering those cars through a Montana LLC would reduce it considerably.
Tim Allen
A native of Motor City, Allen is no stranger to the automobile scene. Allen infamously played a gearhead in the long-running sitcom Home Improvement, but Tim's real-life wasn’t all that far off.
Allen’s collection is not on the level of Leno’s, but hey, whose is? The DuPont registry does not have a value attached to Allen’s collection, but it is likely valued in the seven figures.
Allen resides in LA, and the garage is in Burbank, so we know that taxes are not exactly light in that area at a rate of 10.25 percent. But more on that later.
Collector Car Values Correlate to Taxes, and They Are Both Going Up
If it wasn't obvious, the more your collector cars are worth, the more you are going to pay in taxes on your classic car collection. What you might not have considered is the rate at which the value of those vehicles has been, and still is, appreciated.
There are tiers in the collectible car market, so you should be able to enter the market as a collectible owner in the $20,000-$30,000 range. In addition, investors are looking at classic car collections as a market hedge because they have done tremendously well over the past few decades, with a rise of nearly five hundred percent in the 2004-2014 decade.
The Knight-Frank Luxury Index indicates that classic cars will continue to rise in overall value, even if it is overall at a slower rate for a while. So how reliable is appreciation in the classic car market?
The Historic Automobile Group International (HAGI) indices indicate that the market is at least as reliable as anything in the stock market, considering it is up 5.91 percent on the year while the S&P Global 1200 is down almost five percent year-to-date.
Suffice to say, classic cars are proving to be a solid investment strategy, and the value range for cars is practically limitless; in 2014, a single 1962 Ferrari 250 GTO Berlinetta sold for over $38 million. So the sky's the limit. And yes, this Ferrari was sold in LA at Bonhams Auctions. Registration for this car if it is sold today? About $3.9 million just in taxes alone. I don’t care if you have the money to drop on a $40 million car; practically nobody wants to spend almost $4 million just in taxes alone.
Taxing Classic Car Collections
We talk a lot about out-of-state car registration services; it’s what we do here at Dirt Legal, after all. But classic cars, especially those in sizable collections, take us into some gray areas.
We can understand the registration process and sales tax obligation clearly, but classic car collections are not just everyday cars. They are generally not daily drivers, although most owners do drive them. So, to drive them, you, the owner, will register them, right? Of course, you would; why own a collector car and not drive it!
But what about the long-term ramifications of owning a valuable (and expensive) classic car collection?
Let’s talk short-term first.
California, For Example
Let’s assume you have a growing collection of classic cars, all of which are roadworthy, and you intend to keep driving them. The total value of your collection is $500,000, and you are a resident of California.
Your total sales tax contribution will be a minimum of $37,500 for your entire collection. Note this is not annually, but the cumulative tax bill is based on all purchases. That is built on the minimum auto sales tax rate of 7.5 percent in California; the populated areas are much higher, usually around ten percent. So, in LA, that tax bill is more like $50,000 which is ten percent.
If instead, you registered them all through our Montana LLC Service and graced them with Montana registrations and plates, your tax burden would be reduced to zero. That’s right, zero. No sales tax burden at all.
How Are Car Collections Taxes Calculated?
The easy answer is that there is no easy answer. Classic cars are still vehicles, so they fall under the basic umbrella of auto sales taxation. But they are also a commodity and many states factor in the idea that they will rarely be driven.
So how does the IRS view classic car collections? Well, that depends on what you are actually doing with the cars. If your outright intent is to purchase them, hold them, and sell them for a profit over time, you are going to pay for it. The capital gains tax from selling collectibles comes in at a booming 28 percent.
So let’s get this straight: overall, if you buy your collectible car in a high-tax state like California (where a lot of them are sold), you are going to pay 7.5 percent minimum for auto sales tax with registration. Then, if you sell your investment, the IRS will hit you for another 28 percent. So what does this look like in the real world?
Ok, say you take a collectible car and purchase it for $250,000 (we like simple math). At the bare minimum, California will take 7.5 percent, which is $18,750.
Then you go to sell the same car in a couple of years. Say it has appreciated by five percent per year, which in all reality could be a very low estimate, and it sells for $275,000. You are going to owe $77,000 in capital gains from that sale which is easily more than you made on appreciation alone. Ouch.
So, here’s the deal: we can’t help you with the capital gains stuff or whether what you are doing would fall under that umbrella. That is not in our wheelhouse. But we can surely help you with that money going to the state, even if your collection is far more modest than that.
How Our Montana LLC Can Protect Your Classic Car Collection
We have no affiliation with the previously mentioned celebrities or their respective car collections. They are private parties and probably register their cars dutifully in their respective states. But what would it look like if they chose to register their cars under a Montana LLC?
We know Leno's collection is in the ballpark of $52 million-ish, although some estimates say as high as $150 million. But let’s go with the low end.
His collection resides in Burbank, with an auto sales tax rate of 10.25 percent. So, if his vehicles were registered today, the total due is roughly $5.3 million. That’s just sales tax, folks.
If he were to register them through a Montana LLC, that tax burden would be zero. Then, of course, there is the $825 luxury car fee per car, but say that is multiplied by 350 cars, that only comes out to $288,750, which is roughly 5.4 percent of the sales tax burden of registering in California, or a savings of roughly $5,041,250.
How about that Seinfeld fellow over in New York City? As I recall, his collection of primarily Porsches is valued somewhere around $50-$150 million. But, again, we’ll err on the low side.
New York City has a tax rate of 8.88 percent. Seinfeld’s collection is valued at $50 million; he has paid somewhere in the ballpark of $4.4 million to register those cars. Now, if it is $150 million? About $13.3 million in taxes alone.
People, there is a better way.
Montana: The Dirt Legal Advantage
Our view on this topic is strictly from a mile-high viewpoint. Who knows what kinds of deals these gentlemen’s legal and money teams have come up with to reduce their tax burdens or what their motivations are for registering how and where they have.
With that being said, though, it is widely known that supercars and high-value collector cars owners have registered them in Montana for years to get out of high tax rates.
We are all about that; a core tenant of our mission is giving you options for getting on the road with the least cost and least hassle possible. And we don’t care what you drive; chances are, we can get it tagged and titled for less.
We know that anyone living in high-tax states, namely California and New York, will have some hefty tax notes on their classic car collections. There is only so much magic a CPA can conjure up against the government.
A Montana LLC is the best low-cost alternative. The LLC is in Montana, and the LLC holds your assets, whether they be boats, airplanes, high-end RVs, or fast/rare cars. We don’t care. You can throw all of those things in there!
Montana also does not require smog inspections, safety inspections, or the oddly specific elements that certain states require like numbers-matching engines.
How Do I Get Started With A Montana LLC?
Starting your Montana LLC couldn’t be much easier. All we need to start is valid proof of ownership for your vehicles, which can be:
Title
Manufacturer’s Certificate of Origin (MCO)
As long as you have the VIN and proof of ownership, it’s a breeze. We can register any car from any state as long as you have these items in hand.
The process from there is painless. You will need to keep your eyes peeled for the packet we will send to you. Once you have it, fill out the paperwork and send it back to us, and we handle the rest on your behalf.
There shouldn’t be much to mull over if you are a car collector; your assets are expensive, valuable, and will be taxed to the hilt over time. While we cannot do anything about capital gains, we can help a lot when saving on sales tax and keeping you out of the inspection office!
Pull the trigger on our Montana LLC Registration Service and keep more money in your pocket. Or spend it on more cars, like we would.
John McCoy is a lifelong car and truck enthusiast and has a strong mechanical background off the road. He spent over 13 years in the U.S. Air Force as a crew chief, assigned to the B-1B Lancer, affectionately known as the Bone to those in the community, and the KC-135R Stratotanker. He resides on a small farm in Eastern Kansas where he (sometimes) enjoys fixing ancient farm equipment.