Starting a successful car dealer takes more than knowing having nice cars available to sell. Starting a new business requires completing several steps, and obtaining licensing is an important one as it may impact your ability to operate legally.
The question, “what business license do I need to start my car dealer” is a common one, but in reality, your business will likely need multiple licenses, permits, and registrations from federal, state, and local agencies.
Let’s look at which licenses to consider when starting a car dealer.
Related: Guide to starting a car dealership
To not miss any important licenses and permits, we recommend also checking with your local Chamber of Commerce, economic development agency, or use a business license service like Incfile or Corpnet.
What Licenses Do You Need to Start a Car Dealer?
While not a license, auto dealerships have other requirements unique to their industry. One is following the Federal Trade Commission (FTC) guidelines for dealerships called the Used Car Rule and the Consumer Rights and Safety Laws. The FTC Used Car Rule requires each dealership to have a Buyers Guide to reduce miscommunication between the business and consumers.
In addition to federal regulations, states have legislation for used car dealers known as lemon laws, which mandate the dealer is upfront about the car’s condition.
Individuals selling a few cars each year won’t require licensing, however, to have an auto dealership and have access to dealer auctions, each state has different requirements to be licensed as a vehicle dealer. Typically, a vehicle dealer’s license is processed through the Secretary of State’s office or Department of Motor Vehicles (DMV), and may involve passing an exam, proof of insurance, and passing a criminal background check.
Typically states require that an auto dealership have the hours of operation prominently posted at the main entrance of the lot and the lot needing to be a certain amount of square feet.
There are different types of dealer licenses depending on the state, from new vehicle, used vehicle, trailer dealer, and/or ATV or motorcycle dealer.
Before license applicants are finalized, the lot will have to pass inspection by the state to ensure it passes state requirements.
A surety bond (also called an auto dealer bond) is required by most states as a condition of licensing. A surety bond protects consumers and ensures the dealership adheres to state regulations and pays vehicle taxes.
In addition to vehicle dealer-specific requirements, there are several other general licensing requirements for starting a car dealership. While licensing requirements vary by location, here are a few of the common licenses and permits that a car dealer may need:
When starting a business, the legal entity needs to be selected. A legal entity refers to how a business is organized to operate. There are four main types of entities; sole proprietorship, partnership, corporation, and Limited Liability Company (LLC).
Each type of entity has its own pros and cons, such as liability protection, costs, and administrative requirements.
Related: What is the difference between a sole proprietorship, partnership, Corporation, or LLC?
Business Name Registration
While not necessarily a business license, it’s worth noting that to use a name for a business, many states require the registration of that name. Making matters more complicated, the process of name registration is different by state and the type of business entity.
For instance, sole proprietorships and partnerships generally need to register a business name (also referred to as a Doing Business As, DBA, fictitious name, or assumed name).
Learn: How to register a DBA
Corporations and LLCs register are a little easier because the name is registered when the entity is formed with the state.
General Business License or Permit
Depending on where the business is located, a general business license or permit may be required. A few states require a business license; however, they are more commonly found at the city level.
Learn more: Business license requirements by state
Federal Employer Identification Number
The Federal Employer Identification Number (also referred to as a FEIN, Employer Identification Number, EIN, or Federal Tax ID Number) is a unique nine-digit number that identifies a business with the Internal Revenue Service (IRS).
Any business with employees or one that forms as a partnership, Corporation, and in many cases an LLC, will need to get an EIN.
Sole proprietors and single-owner LLCs without employees can instead use the owner’s social security number.
Learn: How to get an EIN
Sales Tax Permit or Business Number
In order to sell products and/or offer certain services, a state sales tax permit (also referred to as a business tax number or tax ID number) may be needed. This permit creates an account number with the state’s Department of Revenue (or similarly named state taxing agency) to collect and remit sales tax.
Learn: How to get a sales tax permit in each state
When buying inventory that is being resold to customers, the business can purchase these items tax-free. A resale certificate (sometimes referred to as a seller’s permit) allows a business to purchase inventory, and instead of paying the sales tax to their vendor, they charge the sales tax to the end-user of the product.
A resale certificate only allows a business to not pay sales tax for items being resold, and sales tax will still need to be paid for supplies or equipment.
Learn: How to get a resale certificate
Certificate of Occupancy
In most communities, a car dealer will likely need to secure a Certificate of Occupancy (CO) before operating in a commercial building. This certificate is typically obtained from the city and/or the county and allows a business to occupy and operate from a building. Before the certificate is issued, the building will need to comply with zoning regulations, building codes, and any other local requirements.
If the car dealer will be operated as a home-based business, a home occupation permit may be required.
Before purchasing or leasing a location for your car dealer, be sure to check with the local zoning department first to ensure the business can legally operate out of the chosen location.
The process of identifying all of the licenses and permits necessary to start a car dealer may feel confusing and overwhelming. It is critical to do this right the first time, otherwise, your business may be temporarily shut down until all licenses are obtained.
For some additional peace of mind, companies like Incfile or Corpnetcan do the research and ensure you have all of the proper federal, state, and local licenses to start your business.