Tennessee is the heart of the southern automotive corridor. New car dealers are attracted by its booming automotive manufacturing industry, low tax, and ample supply of skilled labor. Despite the influx, there is much room to grow. If you want to open a dealership, it’s the right place to start your business.
Before marketing your dealership business, there are a few formalities that you need to address. Initially, it may seem like much work, but the paperwork is relatively straightforward. After all the documents are submitted, a field enforcement agent will visit the dealership to inspect the facility.
Based on the inspection results and a final review of your dealer license application and the submitted documents, you will receive the Tennessee dealership license so you can start the sales activity. To help you get started, this guide will walk you through the essential steps in getting your Tennessee dealer license.
1. Register Your Business
The first step is to register your business with the local authorities. You can register your auto dealership as LLC or a Corporation. These are the two most popular business structures for car dealers in the country. The type of business structure has two significant advantages: enhanced credibility and protection from personal liability.
Besides registering your business with the Secretary of State, you must also obtain a tax license and a tax identification number. Afterward, you should seek a salesperson license for your employees who are involved in selling automobiles.
Let’s first talk about the business registration process. As indicated, most auto dealers opt for LLC or a Corporation. For many small businesses, LLC is a good option because it’s one of the simplest forms of business structure, which is easy to maintain. For medium-sized and large enterprises, a Corporation may be a better option. As part of the business registration process, a prospective car dealer needs a compilation letter from a CPA attesting to meeting the minimum net worth of $10,000.
Irrespective of the type of business, the following are common steps that every motor vehicle dealer must follow to register their business with the Tennessee Secretary of State.
- Naming the business
- Filling articles of incorporation – The set of documents needed to register a business entity is called articles of incorporation.
- Choosing a registered agent – A registered agent is an entity that accepts tax and legal documents on your behalf. You can be your own registered agent, but most businesses choose to outsource this task.
- Getting the EIN, Employee Identification Number, from the IRS for tax purposes
After selecting a dealership name, the first step is to submit the article of incorporation online to the Secretary of State. If you need assistance, visit your local county office to file these papers. Another way to do it is to hire someone to do it for you.
When filling out the articles of incorporation, you can name a registered agent. As soon as the business is registered, you are entitled to get the employee identification number from the IRS website. If you have questions on how to do it, it’s recommended to contact the Tennessee Secretary of State’s Division of Business Services or call them at 615-741-2286.
After registering your business, it’s time to apply for a Tennessee business tax license and Tennessee Sales Tax Identification Number.
Stop by the county clerk’s office to get the business tax license. Show them the approved article of incorporation and pay a small fee. If it seems a hassle, call the Tennessee Department of Revenue at 605-253-0600. To save time, you can apply for the dealer license online.
Similarly, you can apply for a TN Sales Tax ID number. The sales tax can be registered through the Tennessee Taxpayer Access Point, TNTAP.
After completing these formalities, you’re ready to get the salesperson license. The salesperson license applies to all owners and salespersons who will sell automobiles. The Department of Commerce & Insurance has all the details on receiving a salesperson license in Tennessee.
2. Pick a Tennessee Dealer License You Want to Apply For
Each state has specific regulations on obtaining a dealer license. Therefore, you must know the type of dealerships to apply for an appropriate Tennessee dealer license. Here is an overview of the three most common types of dealers:
A) Franchised Motor Vehicle Dealer
A franchised motor vehicle dealership usually deals in new vehicles. The dealership has a franchise agreement with the manufacturer or distributor of new motor vehicles, towable RVs, and travel trailers.
A franchise dealer license is issued for a specific location or a showroom. This license is not transferable, so you need a separate franchised motor vehicle dealer license for individual dealerships.
To obtain a dealer license, you also need to show the letter of acknowledgment sent from the manufacturer or the distributor. The letter must identify the line that make or makes the applicant is licensed to sell in a specific geographical area.
B) Used Motor Vehicle Dealer
As the name suggests, used motor vehicle dealers sell used cars. Also known as independent dealers, these dealers get their vehicles from trade-ins, auctions, and private sales. The fee for a used vehicle dealer is $400, payable to the Tennessee Motor Vehicle Commission.
It’s important to distinguish between a used motor vehicle dealer and a wholesale motor vehicle dealer. A wholesaler is someone who sells used cars to licensed car dealers. If you want to take this route, talk to the local MVC representative for additional requirements.
The requirements for used car dealerships are somewhat similar to the new dealerships. For instance, the used car dealer needs a parking space enough to display 15 cars. This excludes three reserved customer parking spaces. In most cases, securing a good facility is practical before applying for licensing.
C) Used Motor Vehicle Dealer
If you wish to sell new motorcycles, this is the license to apply for. As a franchised motorcycle dealer, you’re entitled to sell new motorcycles to the general public.
There is a $400 per line-make fee for the license. In other words, you need to pay $400 for each collection of models, a series, or a group of motorcycles manufactured by or for a particular manufacturer.
These are not the only license requirements to get an auto dealer license, as there are other formalities. However, most of these are already covered in this guide. Of these, the most important is securing a place of business. Here is how to do that:
3. Secure an Established Place of Business
To get a business license, you must have an established place of business. The business area should be a commercial outlet with at least 288 square feet of interior office space, a rest room, and a display lot with enough space for 15 display vehicles and three parking lots for customers. Your business location must also meet zoning compliance rules in your area.
According to Tennessee law, each dealership should have exclusive space for conducting business and sales activities. A wall must separate the two companies if you share commercial space with another business entity. Similarly, any access to your place of business must be sealed.
The inspector will also check for a landline phone. While you can give your mobile number to your customers, your customers should be able to reach you through a dedicated landline phone number during regular business hours.
Remember that you must display business hours of operations prominently on the door of your dealership or your dealership sign. To fulfill the requirements, your business must be open at least three days a week or a minimum of 12 hours. During these times, the office must be staffed.
If the location does not have a repair facility, you must sign a service agreement with a reputable repair garage in your area. After taking care of these important documents, apply for a zoning certification from your local zoning authority. To get this certificate, you can contact the Office of the County Executive or the Office of the Municipality. Tell them you want to apply for a dealership so they can send you a verification letter.
How to Get a Dealer’s License in Tennessee Without a Lot
Under certain circumstances, you may not need a lot to get your business license. For instance, if you have a wholesale dealership, you can sell directly to your clients without a display. Since the general public is not involved, you may not need much to display the stock. In this case, you can operate your business from your home or another business location without the stringent requirements.
If you’re already running a business, there is an exception to the dealership rule. According to the Tennessee MVC website, you can operate an additional business at a place of dealership provided that the dealership space is at least 66% of the entire setup.
Likewise, if you’re starting your business, you don’t need a dealership license until you’ve sold five cars. If this seems a bit fuzzy, talk to your DMV representative, who can guide you accordingly. Remember, you may be able to fulfill all the requirements without renting a commercial space.
4. Get a Tennessee Auto Dealer Bond
All dealerships in Tennessee require an auto dealer bond and a certificate of liability insurance to get a car dealer license. Surety bonds are separate from the insurance requirement, however. The bond amount is $50,000, and it may have a bond cost of anywhere from $275 to $2,500, depending on your credit score. It is valid for two years. You will need to renew it before it expires.
A dealer bond is also known as a security bond. It protects consumers from fraud, losses, and misrepresentations. You can’t get a dealership license without applying for a dealer surety bond. Even if it was not mandatory, obtaining a surety bond makes great business sense because it protects you from any liabilities up to $50,000.
From a consumer viewpoint, the surety bond will protect a consumer if the dealership fails to pay a prepaid title, registration, or related fee. In short, the bond is a type of insurance that protects the public if the dealer breaks a law related to a motor vehicle sales agreement.
It’s easy to get the surety bond. You can apply for a bond from a reliable surety bond provider who can give you a quote and guide you through the entire process. You can submit an online application. As a part of the process, the surety will evaluate your audited financial statement, your financial background disclosure, and other documents to evaluate your risk before agreeing to underwrite your bond. If your application is approved, you will receive a free quote for your bond premium.
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Verify Your Tennessee Dealer License
After registering the business, submitting your license fees and application packet, and getting a license, it’s time to verify the license at the Tennessee Motor Vehicle Commission website in Nashville. When everything is complete, the authorities will list your license on their website along with all the other active license holders in the state of Tennessee. The verification is also important because it lets potential clients know you are a licensed dealer.
To verify the status, visit the Tennessee license search and verification web link. After filling in the CAPTCHA, select “Motor Vehicle Dealers” from the dropdown list of professions. Once selected, you can fill in any of the relevant fields before hitting the search button to check the status of your license. If you don’t see the license, call the Department of Commerce & Insurance at 615-741-2711 for assistance.