A Texas motor vehicle dealer license allows an individual or business to legally sell vehicles as a way to earn income in the state of Texas. Its purpose is to protect the general public from dealers violating the law. Selling vehicles without a license as a business has serious legal implications, so it is best to obtain your license.
Yes, if you are selling more than 4 vehicles per year and the vehicles are not titled in your name. The Texas Department of Motor Vehicle only allows an individual without a motor vehicle dealer license to sell up to four vehicles per year and each vehicle needs to be titled in their names. By titling the car in your name, you are paying 6.25% in sales tax on each vehicle you buy. Not a great deal, right? Dealer with a motor vehicle dealer bond does not pay sales taxes on car purchase and can sell as many cars as their business allows.
In Texas, there are three large overall license types: Franchise, Independent and Salvage Dealer.
Each car dealer license will be given a General Distinguishing Number (GDN). Independent license is the most popular license type and it is further divided into the following five categories, depending on the kind of vehicles you are hoping to sell.
Note that each license is specifically to that vehicle type. If you need to sell more than one vehicle type, you would need all the licenses related to the specific vehicle type.
As listed above, there are four different types of dealer license and you need to decide what license you are applying for based on the type of vehicles you are planning to sell.
A 6 Hour Pre-Licensing Training Course is required for independent (GDN) dealers who buy, sell or trade used cars, trucks, motor homes, neighborhood vehicles, off-road vehicles (ROV), all-terrain vehicles (ATV), and utility vehicles (UTV).
The course has to be approved by the Texas Department of Motor Vehicles. The licensing course covers topics such as the following:
Independent motorcycle dealers, independent travel trailer dealers, independent mobility motor vehicle dealers, utility trailer/semi-trailer dealers, wholesale dealers, wholesale auction dealers, salvage dealers, or franchised license dealers are not required to take the course
This course is entirely online through learning management systems, and completed, you will be awarded a Certificate of Completion. You will need a copy of this Certificate to submit with your license application. Here some somethings to note about the certificate:
There are many options for your business: Limited Liability Company (LLC), S Corporations, and Sole Proprietorships. We list the pros and cons of each below:
Limited Liability Corp (LLC)
S Corporation
Sole Proprietorship
Here is a link with more information on each business type.
There are various documents that you will need to complete based on the type of business you decide to register.
LLC
S Corporation
Sole Proprietorship
If your business is anything other than sole proprietorship or partnership, you would need to apply for a Federal Employer Identification Number. A federal EIN is an unique nine-digit tax identification number assigned by the Internal Revenue Service (IRS) to identify businesses operating in the United States. It is used for a variety of purposes, including filing federal tax returns, opening business bank accounts, paying payroll taxes, applying for business licenses, etc.
You can apply for a federal employer identification number on the official IRS website. The application can be completed within one session and a Federal EIN number will be provided to the applicant upon completion.
If your business is a sole proprietorship or partnership, you can submit the following identification in place of a federal EIN: A state driver’s license/person ID or a valid US passport.
The Texas Secretary of State website is primarily responsible for administering state elections and recording all business entities operating in the state. On the SOSDirect website, you can file business formation documents, receive filing evidence, search for business entities, and obtain entity status.
Example certificate of existence
The dealership location is where all primary dealer business is performed. Here are some notes about its requirements:
The display lot is a location to showcase the vehicles you are selling. It should meet the following requirements:
One other requirement is that the office needs to have a permanent sign mounted on a pole in the display area or attached to the building. The sign must display the name of the dealership with “six inches high or large” and it must be clearly visible to the public. Lastly, the hour of operations must be displayed prominently on the sign as well.
An auto dealer bond is a financial guarantee made by the surety (insurance company) toward the obligee (Texas Department of Motor Vehicles) that the principal (auto dealer) won’t violate rules and regulations governing the auto dealer industry.
In terms of bond amounts, most Texas dealers need a two-year term $50,000 auto dealer bond, which costs around $350 per year if you have a good credit. However, if your credit is below 650, the bond could be much more expensive. Franchised dealers, travel trailer dealers and utility/semi trailers dealers don’t need this bond.
To get a dealer bond, generally you need to provide basic information such as business name, owner name, address as well as social security number for a soft credit check.
If you don’t want to get an auto dealer bond, you can also apply for an irrevocable letter of credit prescribed by Section 320.27(10), F.S., in the amount of $25,000. This letter of credit must be from a bank authorized to do business in Texas. An irrevocable letter of credit is essentially a promise by the bank of the applicant to pay Texas Department of Motor Vehicles under certain conditions (i.e. if the dealer applicant broke the law).
You need to complete the correct auto dealer application from TxDMV. You need to submit your dealer license application on the official Texas DMV site.
If you have questions, you may call Texas DMV at 888-368-4689.
Although most dealers typically apply for either a franchise or independent license, it is essential to review all available license types to ensure that you apply for the correct license type. Keep in mind that if you want to sell various types of vehicles, you will need to apply for each GDN for that vehicle type separately.
In your eLicensing application, you may need to submit some or all of the following:
Each individual on the license needs to attend the fingerprinting appointment to check for any criminal record. Please don’t schedule any appointment until receiving the instruction to do so. More details can be found on the official Texas DMV fingerprinting requirement page.
After the appointment, the applicant will get a receipt. The purpose of the fingerprinting is to determine if you have been found guilty of a felony. If you have been found guilty, then the Texas DMV will require an explanation. In such circumstances, we highly recommend you consult a professional attorney to maximize your chances of approval.
Once Texas DMV approves your application, the DMV will mail your license at the address you provided in your application. Now, you are a licensed motor vehicle dealer and go open a bottle of champagne to celebrate!
For a retail Texas dealer, the minimum operational requirement is to be open for at least four consecutive hours per day, four days a week. On the other hand, a wholesale dealer must be operational for at least two consecutive hours per day, for at least two days per week.
Due to the Texas Blue Laws, motor vehicle dealers can’t sell vehicles on both Saturday and Sunday. They can choose to be operational on either day, but not both. However, dealers of travel trailers and trailer/semi trailers are allowed to operate all seven days of the week.
It is mandatory to maintain records of all vehicles bought, leased, and sold for a minimum of 48 months. It is advisable to make copies of all the documents related to these transactions.
It could take 8-9 weeks for you to obtain your Texas dealer license after the Texas DMV received your application. In the case your application is incomplete, the state will send you a letter requesting the missing information. This process will delay the approval time. Therefore, you want to make sure that your application is complete before initial submission to prevent unnecessary delay
It is easier to get a DMV approved location. If you can’t find it, you will need to search through craigslist and find a location zoned for a used car dealership. You can get a warehouse location with a small office setup. A real estate agent can also help you with your search.
No, Texas Independent Dealer License expires every two years.
To ensure timely renewal of your license, it is recommended to apply no later than 45 days before the expiration date, including the renewal of your bond. You will typically receive an email in advance alerting you the renewal date.
Texas Pre-Licensing Training: $150
Each General Distinguishing Number costs $700.
The fee for each Texas dealer license plate is $90.
Registration with Secretary of State: $300
Auto Dealer Bond: $300
Electronic Fingerprinting: $50
Signage cost: $100
Total: $1,790
You do not need a license to sell cars in Texas if:
You can buy it from a surety broker like us. Because surety is such a nuanced industry, not many surety companies can underwrite all bonds effectively. Therefore it's important to go through a broker that knows which surety company can offer the lowest rates based on your personal profile.
