Starting a car dealership is an exciting venture; but before starting, you will need to obtain a car dealership license. States require vehicle sellers to comply with some requirements to protect consumers, set fair business practices, and ensure each dealership complies with federal and local regulations.

In this article, you will find a comprehensive guide about how to get your car dealership license and comply with all the requirements to establish your dealership in Alabama.

Getting Started

The 1975 Code of Alabama stipulates that individuals, companies, or entities aspiring to open a used or new car dealership or start a vehicle wholesaling or rebuilding business must obtain a regulatory license granted by the Alabama Department of Revenue (ADOR). Additionally, it’s necessary to acquire a business license, also called a privilege license, from your county’s probate office.

Both licenses must be obtained before starting any car-related business operations in Alabama. Before October 2020, the type of permit varied depending on your intended commercial activity. However, things became simpler after that date, thanks to the Alabama House Bill 393, which introduced a new type of license called “Master License,” merging four categories. This license includes the following activities:

• Sell new or pre-owned vehicles to the general public.
• Participate in the purchasing and selling of vehicles through auto auctions.
• Rebuild severely damaged vehicles that may need a new vehicle identification number (VIN).
• Refurbish or repair damaged vehicles for resale without changing the VIN.

It’s important to keep in mind that you must have your regulatory license or business license (issued by the State of Alabama) before applying for the car dealership license at your county’s probate office.

Regulatory License Requirements

Permanent Business Location

Before applying for the license, you need to buy, lease, or rent the property where you will conduct your business. You will also ensure the place’s phone number is verifiable and listed in the phone company’s directory.
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You will have to determine the name of your business as part of the establishment process. Lastly, if you will be selling pre-owned or new vehicles to the general public, you will have to install a permanent sign with the business name on it and have some photos of the place where the sign can be clearly visible.

Alabama Sales Tax Number

If you are setting up an auto retail business, you will need to get a sales tax number. You must submit your online application at the Alabama Department of Revenue’s website by completing a form with some personal, business, and payment information and your business description. Your request will take one or two business days to be processed.

Federal Tax Identification Number

All dealers must have this number. If you are the business’s sole owner, you can use your Social Security number as a valid Federal Tax Identification Number. If your business is a partnership, LLC, or corporation, you must get an EIN (Employer Identification Number), also found on some forms as FEIN (Federal Employer Identification Number). If you don’t have one, you can fill out an application on the IRS website and get the number shortly after completing the online application.

Liability Insurance

All dealers are required to hire a blanket liability insurance, which has to be active prior to applying for the dealer’s license. When applying, you will be required to submit an insurance coverage certificate or proof of coverage.

The minimal insurance requirements according to Section 402-12-392, Code of Alabama 1975, are:

• $25,000 for bodily injury/person/accident.
• $50,000 combined for bodily injury/accident.
• $25,000 for property damage/accident.
• $75,000 single-limit coverage for an accident.
  

Alabama Auto Dealer Bond

By law, every dealer operating in Alabama must have an auto dealer surety bond. Before starting your license application process, you are required to obtain a surety bond from a reputable insurance or surety company. The current amount for the Alabama auto dealer bond is $50,000. The premium you will be charged, which covers the annual cost of the bond, depends on your credit score and your financial standing ranges from 0.75 to 5 percent.

Applying For Your Regulatory License

Once you have all the above ready, it’s time to apply for your regulatory license. The first step is to initiate the dealer license application process at the Alabama Department of Revenue’s website.

After submitting your application online and paying the licensing fees, you will receive a list of documents you must mail to the Motor Vehicle Division of the Alabama Department of Revenue. It usually takes 3 to 5 business days to process your application since the ADOR receives the documents (it can sometimes take up to 14 business days). If everything is ok, they will grant your license.

Before starting operations, all dealers must become designated agents. In order to do so, you have to submit the Dealer Application for Designated Agent and attend a designated agent training class. You can see the classes’ schedule on the ADOR website. Besides, you will need a designated agent bond; the good news is that your auto dealer surety bond is also valid for this purpose. 

You are almost ready to open your business to the public.

Getting Your Privilege License Application

This is the final step before being able to start operating legally as a dealer in the state of Alabama. Now that you have your regulatory license, you must file a license application at your county probate office to get your local business license. The fees and requirements may vary depending on the county:

• ADOR online registration fee: $10
• Master Dealer License: $125
• Secondary Business Sites Licenses: $5 each

This is not intended as legal advice. If you have questions about dealer licensing requirements, please seek the assistance of legal counsel.

Partner With ACV Auctions Upon Receiving Your Dealer License

Once you’ve obtained your dealer license, register with ACV Auctions to source used car inventory in Alabama. We are an online auto auctions company with the best inventory to source your business. Signing up for ACV is free, and we have excellent vehicles with complete condition reports to ensure you will offer the best products in the market to satisfy your customers’ needs.

Sources:

https://www.dealertraining.org/dealers-license/alabama-dealer-license.html
https://mvlicense.mvtrip.alabama.gov