Opening an auto dealership can be a great way to create a business that can flourish in your family for generations. While the state of Alabama can be a bit more complex to get a dealer license than in other states, it’s entirely possible if you have the correct information to guide you.
Determine the Type of Alabama Dealer License You Need
According to the Code of Alabama 1975, any business that wishes to sell used or new cars, recondition used vehicles, act as a motor vehicle wholesaler, or operate as a rebuilder must possess an auto dealer license. It’s important to note that a dealership license and a regulatory license are not the same. Each license type is different, and you must obtain both to operate legally as an Alabama auto dealer.
Prior to October 2020, there were four categories of license designations that any auto dealership could obtain. To help simplify things, Alabama House Bill 393 rolled all of these four categories into one main license referred to as a Master License. Under this new license, any car dealership can conduct work that fits any of the four categories below:
- Reconditioner: Repair and/or refurbish used cars to sell under the same VIN number.
- Rebuilder: Repair vehicles to the extent that they need a new VIN number.
- Wholesale Dealer: Buy or sell vehicles at auctions.
- Retailer/Distributor: Sell used or new vehicles to the general public.
Alabama Dealer License Requirements
Licensing requirements for the state of Alabama require you to obtain a regulatory license to operate from the Alabama Department of Revenue. Second, you’ll need to go through the application process for a privilege license, also referred to as a business license, from your individual county’s probate office.
Obtain a Permanent Business Location
Before you can be issued a car dealer license, you need to have a permanent business name and business location. As part of the dealer license requirements, you’ll need a permanent sign affixed to the property if you plan to be a retail dealership.
All businesses must have a verifiable phone number on their application form. To get the instructions and all the necessary requirements for your dealer license application, visit the Alabama Department of Motor Vehicles (DMV) website.
Sales Tax Registration
If you plan on selling new and used vehicles from a retail location, then you need to apply for a sales tax number from the Department of Revenue. You can apply online and receive your sales tax number in about one to two business days.
Federal Tax Identification Number
When you’re filling out your online dealership license application, you’ll need to designate your business type. You’ll choose from four categories: sole proprietorship, partnership, limited liability company, or corporation. If registered as a sole proprietorship, you’ll use your Social Security Number as a Federal Tax Identification Number.
If you’re a partnership, LLC, or corporation, you will use an Employer Identification Number (EIN) as your federal tax identification number. You can complete this application online at the IRS website. You’ll receive an instant EIN once you complete the application process.
Gather the Required Documents
You’ll need to supply a regulatory license as part of your application process. While you don’t need to undergo a training course, you’ll need to visit the Motor Vehicle Division License Portal online to apply. After supplying your EFIN or SSN, you’ll need to pay $10 per category. Once completed, you’ll need to mail in the supporting documents alongside your application to the Alabama Department of Revenue.
You’ll also need to apply for a privilege (business) license in your county. Each county’s probate office has different requirements for submitting your application. It’s best to consult the county for the necessary steps to get this license.
Get Your Criminal Background Check
A mandatory criminal background check is required to ensure that any potential auto dealership owner will maintain an ethical business. You’ll need to submit your consent to undergo this background check as part of your licensing process.
Obtain a Trader’s License & Proof of Liability Insurance
Any Alabama motor vehicle dealer must purchase blanket liability insurance coverage for all vehicles directly connected with their business. When compiling your online application, be sure to obtain an insurance certificate so it can be verified by the Department of Revenue.
There are some set minimum insurance standards that you must meet. These include:
- Bodily Injury or Accident: $25,000
- Property Damage or Accident: $25,000
- Combined Bodily Injury or Accident: $50,000
- Combined Single Limit for Accident: $75,000
You must maintain adequate insurance coverage during and after the licensing process. Licensed dealers who don’t have sufficient insurance coverage can face penalties of up to $5,000.
Get Your Alabama Auto Dealer Bond
Every business applying for a license and those currently holding a license must have an active auto dealer bond. The minimum license bond amount is $50,000. You’ll need to pay a percentage of the total bond to obtain an Alabama auto dealer bond.
Most percentages are fairly small, like 1%. However, the actual percentage you must pay for your bond premium will vary depending on several factors. These include your credit score, personal finances, and so forth. While you can certainly obtain a bad credit surety bond, expect to pay a higher percentage.
There are numerous bond companies out there that can give you an individualized free quote for your new vehicle dealership. Make sure you meet the minimum $50,000 bond amount and pay your surety bond cost premium to activate your policy. Next, you’ll want to submit the required documents to prove that you have a bond to the Department of Revenue.
Submit Your Dealer License Application
Once you have obtained your bond, regulatory license, and business license, it’s time to submit your dealer license application. If you’ve satisfied all of the state law requirements, then you’ll be issued a valid auto dealer license within 7 to 14 business days.
Renew Your License Yearly
Once you get your motor vehicle dealer license, that’s not all you have to do. Your license must be physically renewed each year. You’ll need to submit your renewal form and license fees by September 30th of each year to extend your dealer license for another year.
You can submit your renewal application online at the Alabama Motor Vehicle Title Registration and Insurance Portal. While the state graciously gives a 30-day grace period, dealers who don’t renew within the allotted time frame can be forced to go through the entire license application process again.
What Constitutes a Dealership Location?
Three main factors help to signify a location as a dealership. These include an office, permanent sign, and display area. The office needs to be fully accessible from the outdoors and devoted exclusively to your dealership business operations. It can’t be simply a home office, eve-n if it can be accessed through a separate door in your home.
Your sign needs to be permanent and easily viewable from the street. Depending on the type of vehicle operations that your dealership does, your sign may need to meet certain size requirements, including visibility and a specific amount of square feet. Lastly, your dealership will need a display area that is situated on the same property as your office and permanent sign. Without these three key elements, you won’t be issued an Alabama dealer license.
How Much Does It Cost to Get a Dealer License in Alabama?
There are multiple costs associated with the dealership licensing process. If you’re thinking about starting your own Alabama car dealership, then you’ll need to plan for additional licensing expenses. They include:
- Master Dealer License: $125.00
- Privilege License: $150.00 (Will vary depending on county)
- Additional Operating Locations: $5.00
- Alabama Auto Dealer Bond: $500.00 to $5000.00 (Will vary depending on inventory, credit score, and operations)
As part of your dealership, you’ll also need to pay for plates from your local DMV. These cost the following:
- Dealer Tag: $25
- Dealer Motorcycle Tag: $17
- Manufacturer Tag: $25
- Manufacturer Motorcycle Tag: $17
Each additional plate will be the same amount as stated above. There are restrictions on the number of plates a dealer can have. However, there are no restrictions on the number of plates that a manufacturer may purchase.
How Many Cars Can I Sell in Alabama Without a License?
While dealerships are what many think of when it comes to who sells vehicles, they’re not the only ones. Individual citizens may legally sell vehicles throughout the year. However, Alabama puts restrictions on the number of vehicles that can be sold by an individual before they must apply for a dealer license. As of 2022, individuals are restricted to selling four vehicles or less. If you plan on selling five or more vehicles per year, then you will need to apply for a dealer license.
Can I Get an Alabama Auto Dealer License Without a Lot?
The answer to this question depends on the type of business you plan on having. If you want to sell new and used cars to the general public, then you will need to have a permanent business lot complete with a permanent sign and office.
How Long Does It Take to Receive Your Dealer License?
Whether you’re itching to sell new or used cars, you need to physically have your dealer license before you do so. Once you successfully submit all the necessary documents in your online application, you can expect to receive your dealer license within 7 to 14 business days.