How to Get an Alabama Auto Dealer License

The Alabama Motor Veicle Dealer License (aka an Alabama auto dealer license) is a permit issued by the Alabama Department of Revenue Motor Vehicle Division to individuals or businesses in Alabama that buy or sell more than five cars in any given year. The license applies to new or used cars, motorcycles, recreational vehicles (RVs), trailers, and other motor vehicles sold for profit.

Today we'll cover the different types of licenses, what they enable you to do, and the steps involved in acquiring an Alabama motor vehicle dealer license. 

Step 1: Choose your license type

There are four categories of motor vehicle dealer licenses in Alabama:

1. New Vehicle Dealer Licenses enable individuals or businesses to sell new cars or other vehicles. 
2. Used Vehicle Dealer Licenses allow individuals or businesses to sell used cars or other vehicles. 
3. Wholesaler Licenses enable individuals or businesses to sell used vehicles to used vehicle dealers to sell to the general public.
4. Rebuilder Licenses allow individuals or businesses to rebuild destroyed or damaged vehicles. They may sell these vehicles to the public or dealers as if acting as a wholesaler. 

You must obtain multiple licenses if you want to sell in multiple categories. For example, if someone wanted to be both a used vehicle dealer and a wholesaler, they would need to get both licenses.

Step 2: Choose a business structure and register your business

The next step is to choose a business structure and register your business. Registering your business allows the Alabama government to recognize your dealership legally. All dealerships within Alabama must operate out of a legal business structure. Choosing your business structure is vital to how you want to run your business and how your business affects your finances. 

In the state of Alabama, you can register for one of the following types of businesses:

• Corporation
• LLC/LLP
• Partnership
• Individual 

When choosing your business type, you must consider the pros and cons of each type of business. Motor vehicle dealers are mostly commonly sole proprietors (individual owners), limited liability companies (LLCs), limited liability partnerships (LLPs), or for-profit corporations. Being an individual owner (or sole proprietorship) is the easiest for solo dealers since they require little work to get started. LLCs/LLPs are helpful for established businesses where the owners want the business's liabilities separate from their assets. For-profit corporations are helpful for dealers who want to raise capital outside of their dealerships. 

To register your business as a business type EXCEPT for an individual, you must have the following materials prepared:

• Legal name
• Location (street) address
• Contact information
• Officer/owner information
• Federal employer identification number
• Date of organization or qualification
• NAICS code (visit the US Census Bureau official website to find your code)
• Entity subtype
• Commence date

To register a sole proprietorship, you will need the following information:

• Legal name
• Location (street) address
• Contact information
• NAICS code
• Commence date

To register online, visit the My Alabama Taxes homepage. Scroll to the "Businesses" section and click "Register a business/Obtain a new tax account number" to continue your business registration. After clicking that link, you will begin your registration. The application may take more than 30 minutes to complete. You must have the materials listed above ready to complete the application. After submitting the application, you may wait 3 to 5 business days for the application to be processed. You will be notified via email if your business is approved, or if additional information is required. 

Step 3: Establish a permanent business location

The third step is to establish your business location. Dealers in the state of Alabama are required to have a permanent, physical location to operate from. Finding a space for your business is essential before you start the rest of the application process. 

Your location must adhere to the following requirements:

• Your business sign must be: permanent, either secured to the building or free-standing; no sign banners attached to stakes in the ground; weather-resistant banners are allowed; and legible from the street in front of the display or from fifty yards away (whichever is greater)
• The parking lot must have a parking lot to store the vehicles. Some dealerships, however, are allowed to operate without a parking lot. Read our article "How to Get a Car Dealer's License Without a Lot" for more information. 
• Your hours of operation sign must be weatherproof if posted outside.

Spaces with the following characteristics CANNOT be your permanent business location:

• Shared with other tenants
• Rented by the hour or day
• Just cubicles, not the whole office space
• Temporary, virtual, or rotating
• Has more than one dealer under the same roof

To prove to the state that you have a permanent location, you must submit pictures of the location. These include pictures of the following:

• Building
• Sign
• Hours of operation sign
• The lot where vehicles are parked

Step 4: Create an account on the Alabama Motor Vehicle License portal

The second step is to create an account on the Alabama Motor Vehicle License portal. 

All Alabama dealer regulatory license applications must be submitted on this portal electronically. Logging into this portal will give you access to your license application and other required documents you must complete. 

To register an account on the portal, you must provide the following information:

Business Information: 

• Organization type
• Business name
• Address 
• NMVTIS ID number
• Phone Number
• Identification Number: Federal Employee Identification Number (FEIN)

After you've created an account, you can access your license application. 

Step 5: Obtain a $50,000 surety bond

Alabama requires a $50,000 surety bond for all motor vehicle dealers. The specific bond required is known as the Alabama motor vehicle dealer bond.

What is the Alabama Auto Dealer Bond?

Auto dealer bonds, sometimes known as motor vehicle dealer bonds, are required to guarantee that the auto dealers will fulfill their legal obligations to the state of Alabama and their professional obligations to their clients. The bond is financial protection for those who work with motor vehicle dealers. For example, suppose a dealer sells a car without a valid title. In that case, the consumer can make a claim on the dealer'. 

How to get the Alabama Auto Dealer Bond

The Alabama motor vehicle dealer bond can typically be acquired from surety brokers, like us. Because surety is a very traditional industry, 99% of surety companies (there are many) sell through brokers. Those who don't often struggle with handling surety's complexity and cannot offer the best rates. A good broker will know which carrier to get you the best price based on factors such as your years of experience, credit history and business performance.

Step 6: Obtain liability insurance

The next is to obtain liability insurance. The state of Alabama required the following coverage: 

• Minimum of $25,000 bodily injury/person/accident
• Minimum of $50,000 combined bodily injury/accident
• Minimum of $25,000 property damage/accident or a combined single limit of $75,000/accident

Liability insurance protects you from claims related to bodily injury, property damage, and more. Suppose a client or client's property gets injured at your dealership or in your motor vehicle. In that case, they can make a claim against your insurance policy. Your insurance provider would pay for damages and injuries. 

You can obtain an insurance policy with an insurance company or your local insurance agent, for example, NEXT Insurance.  

Step 7: Complete the license application

On the portal, complete the license application and submit your electronic application. The application typically asks you to include the following information:

1. Personal information about all owners, partners, etc.
2. Your license type
3. Your business types (i.e., sole proprietorship, partnership, corporation, LLC, etc.)
4. Business Location
5. Criminal background information
6. Insurance and surety bond information

Step 8: Pay all applicable license fees

The next step is to pay all your license fees. There are three different types of fees you may need to pay:

Master dealer license: $125

Everyone pays the master dealer license fee when applying for the dealer license.

Each additional business location: $5

This fee is only for those who wish to open an additional location for their business. 

Master off-site sales license: $25

An off-site sale is when vehicles are sold and displayed at a location other than their designated business location. According to Alabama Code Section 40-12-395, off-site sales must conduct business on the following conditions:

• Off-site sales events should not exceed three per year and cannot last ten consecutive days. 
• The event's facilitator should conduct the sales event within the responsibility specified by the new motor vehicle dealer's contract or franchise agreement. Used motor vehicle dealers can only conduct these events in the city or county of their permanent location.
• The event facilitator must obtain the master off-site sales license at least ten days before the event. 

After you have paid all your fees, you can download your transmittal documents. Transmittal documents are additional forms that you are required to complete. 

Once you've paid your license fees, you will find the surety bond form (Form MVT 4-3) among the transmittal documents available. It's called the surety bond form because auto dealer bonds are a subcategory of surety bonds. You can upload your auto dealer bond copy to the insurance and bond tab on the portal. 

The insurance form (Form MVD-1) is also included in the transmittal documents you get once you've paid all your license fees. You can upload your insurance information to the insurance and bond tab on the portal.

Step 9: Prepare all additional documents

The rest of the documents you are required to submit after the initial license application are the following:

• Designated Agent Application: This application allows dealers to have sellers on their property to sell vehicles. 
• Active Sales Tax Number: Obtain your sales tax number by calling (334) 242-1590.
• FEIN Number: The Federal Employer ID Number identifies your business entity. You will get this ID number when you register your business.  

Submit these documents on the Alabama Motor Vehicle License portal. After you submit all your documents, you must wait until your license is approved. Once approved, the Alabama MVD will send you further instructions via email. 

Step 10: Submit your business privilege license application

The last step is to get your business privilege license. You must obtain your license from your county or city's probate office. The privilege license is a requirement that allows individuals or companies to engage in business in the city or county you're doing business. 

For a business privilege license, visit your local county or city official webpage for further instructions. For example, in Greene County, their Business License homepage lists all possible business licenses you may need to obtain. For dealer license applicants, the merchant license, city business license, and state sales tax license are needed. The applications are linked on the homepage. 

License fees vary depending on your business location. Still, there is usually a $1 issuance fee per license and additional fees for mailing or other extra services. 

You must renew your business privilege license every year in October. 

Alabama Motor Vehicle Dealer License Renewal

You must renew your motor vehicle dealer license between September 1st and October 31st of the current year. If you renew your license after October 31st, the renewal fee will be higher than usual. The renewal fee will have a penalty of 15 percent of the license fee plus interest. 

To renew your license, log into your Alabama Motor Vehicle License Portal. There you will find your renewal license application, where you fill out general information about your business and renew your bond and insurance. 

Depending on when you obtained your auto dealer bond, you may not have to renew your bond at the same time as your license. The bond is typically valid for a year, so if you have not had your bond for a year when you renew your license, you do not renew the auto dealer bond. 

To renew your auto dealer bond, you only need to pay the bond cost to your bond provider. For SuretyNow, your bond cost usually costs 1-3% of the bond amount.