What Licenses Does A Car Dealer Need?

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Meta – Not sure what licenses and permits are required when starting a car dealer? Learn more about the required licenses here.

 

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 dealer

While we have researched what licenses and permits your business may need, please be aware that there is no way for us to have uncovered every state and local requirement.

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?

State Licensing

In order to sell cars, 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.

Before license applicants are finalized, the lot will have to pass inspection by the state to ensure it passes state requirements.

Bonding

A surety 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:

Entity Formation

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

Resale Certificate

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.

To make sure your bases are covered, you can do it yourself and contact the city or local economic development office and request assistance. Additionally, there are companies that specialize in business license research, such as Incfile or Corpnet.

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