TLDR: To sell five or more vehicles within a year in Tennessee, it's crucial to obtain a Motor Vehicle Dealer License. However, the process of obtaining this license is quite complex. Below, we outline the necessary steps to acquire a motor vehicle dealer license in Tennessee.
In Tennessee, a motor dealer license is a permit issued by the Motor Vehicle Commission(MVC) that grants individuals or businesses the legal authorization to buy, sell, or deal with motor vehicles. This license is mandatory for anyone engaged in the sale, lease, or exchange of motor vehicles, including new or used cars, trucks, motorcycles, recreational vehicles, and trailers.
Acquiring a motor dealer license in Tennessee involves fulfilling specific criteria and adhering to a designated application procedure, which can differ based on the type of dealership you intend to run. In this article, we will guide you through all the necessary requirements.
A used vehicle dealer, also known as a pre-owned vehicle dealer, specializes in selling previously owned cars, trucks, motorcycles, and other motor vehicles. These dealerships acquire their inventory through various means, including trade-ins, auctions, and direct purchases from private sellers. They typically provide a range of options for customers seeking more affordable or older vehicle models. Used vehicle dealers may also offer certified pre-owned vehicles that have undergone inspection and refurbishment to meet specific quality standards. As with any motor dealer, they must adhere to state regulations and consumer protection laws.
A franchise vehicle dealer is an authorized dealer appointed by a specific automotive manufacturer to sell new vehicles of that brand. These dealerships typically operate under a contract or agreement with the manufacturer, granting them the rights to sell and service the brand's vehicles in a designated territory. Franchise dealerships offer new cars, trucks, and other vehicles directly from the manufacturer, providing customers with access to the latest models, warranties, and manufacturer-backed service and support. They often have a close relationship with the brand they represent and must meet certain standards set by the manufacturer to maintain their franchise status.
Similar to franchise vehicle dealers, franchise motorcycle dealers are authorized by motorcycle manufacturers to sell new motorcycles of a particular brand. They operate under a contractual agreement with the manufacturer, allowing them to offer the latest motorcycle models along with manufacturer-backed warranties and support services. Franchise motorcycle dealerships cater to motorcycle enthusiasts, offering a selection of brand-specific motorcycles and related accessories. These dealerships often provide specialized service and maintenance for the brand they represent, ensuring customers have access to trained technicians familiar with the manufacturer's products.
The initial step in obtaining a motor dealer license involves registering your business as a legal entity with the Division of Business Services through the online application. 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:
Sole Proprietorship
Pros
Cons
Easiest to get started, meant for solo business owners
Lack of legal distinction between the individual and the business. The owner is the business
Limited Liability Corporation (LLC)
Pros Cons Maximum amount of flexibility in business operations A lot of filings and fees to stay compliance and cost of insurance tends to be higher
S Corporation
Pros Cons Better for smaller corporations with a max of 100 shareholders More admin and rules than LLC
Simultaneously, you must also register your assumed name during this stage of the process. To demonstrate the formal status of your business entity, you'll be required to submit supporting evidence such as a copy of the charter or articles of organization along with your application. This documentation is essential to validate the legitimacy of your business during the license application process.
You also need to compile the following supporting documents:
If your auto dealership is not a sole proprietorship or partnership, you must apply for a Federal Employer Identification Number (FEIN). This unique nine-digit tax identification number is issued by the IRS and is essential for auto dealers operating in the United States. It serves various purposes, including filing federal tax returns, setting up business bank accounts, handling payroll taxes, and applying for business licenses.
To obtain a FEIN, you can directly apply through the official IRS website. The application process is typically straightforward and can be completed in one session. Once approved, you will receive your Federal EIN.
However, if your auto dealership is a sole proprietorship without employees and does not file excise or pension plan tax returns, a FEIN is not necessary. In such cases, you can use your social security number as the taxpayer identification instead of obtaining a separate FEIN.
Remember, this step is relevant only if your dealership’s structure is anything other than a sole proprietorship or partnership.
Setting up a proper business location is a crucial step when applying for a motor dealer license in Tennessee. The location serves as the physical base of operations for your dealership and has significant implications for your business's success and compliance with legal requirements. Your business location needs to meet the following requirements:
As part of your application, you must include photos of your dealership in digital format. These photos should cover different aspects, such as the display lot, dealership sign, business hours, contact phone number, office, and restroom facilities.
Furthermore, you are required to submit "street view" photos, showing the entire building with all entrances and exits. If you are unable to provide digital photos, printed photos of 8.5 x 11 inches can be used instead. Ensure that these photos are firmly attached to the 8.5 x 11 paper on all sides.
When applying for the motor dealer license, you'll need to provide a compiled financial statement for your business, whether it is new or not. This statement must demonstrate a minimum net worth of $10,000.00. You should include a compilation letter from a Certified Public Accountant (CPA) on their letterhead, including their license number.
Ensure that the financial statement adheres to generally accepted accounting principles and is dated no more than twelve (12) months before your application date. If the CPA is not licensed in Tennessee, you must furnish a copy of their license. Remember that the financial statement must be prepared in your business's name.
An auto dealer bond is a financial assurance that auto dealers must acquire when getting or renewing their dealer license. It serves as a safeguard for consumers and the government to protect against dishonest or unethical practices by auto dealers.
This bond works as an agreement involving three parties: the auto dealer (known as the principal), the government agency mandating the bond (called the obligee), and a surety bond company (referred to as the surety) that issues the bond. If the dealer partakes in illegal activities, breaches regulations, or fails to meet their responsibilities, the bond provides compensation to affected parties, such as customers who experience financial losses.
You'll need to get a $50,000 dealer surety bond. You can obtain your bond from a licensed surety broker like us. Once you have acquired the bond, submit it with the application.
Additionally, you must have a Certificate of Liability Insurance with a minimum coverage of $300,000 per occurrence.Depending on if you have employees, you might also need worker's compensation insurance from workers comp provider.
Floor planners are inventory financiers who provide funding to motor dealerships for purchasing their vehicle inventory. These financiers offer lines of credit or loans to dealerships, allowing them to acquire new vehicles for their lots. The dealership can then repay the floor planner as they sell the vehicles. Floor planners play a crucial role in helping dealerships maintain a diverse and up-to-date inventory, ultimately benefiting both the dealers and the consumers. It is important to note that you do not need a floor planner to become an auto dealer in Tennesse.
When applying for a license, applicants are required to provide the Commission with a list of their inventory financiers or "floor planners." If there are any changes to the floor planners after obtaining the license, the dealer must promptly inform the Commission within 30 days using the provided floor plan form.
After completing all these steps, you are ready to complete the online application. Here is a list of the forms you will require.
You will then submit all your documents via the MVC portal.
Here is a list of the fees required in obtaining an auto dealer license
License Type Total Fee Franchise vehicle dealer license $400 Franchise motorcycle dealer license $400 Used vehicle dealer license $400 License fees $35 Re-inspection fees $400 Re-location $400
You can pay the licensing fees using cash, check, money order, or certified check. If you're paying by check, make it payable to the Tennessee Motor Vehicle Commission. Their mailing address is:
Tennessee Motor Vehicle Commission
500 James Robertson Parkway
Nashville, Tennessee 37243-1153
For cash payments, you need to go to the Cashier's Office of the Department of Commerce and Insurance, located the following address:
500 James Robertson Parkway, 1st Floor, Davy Crockett Tower.
Nashville, Tennessee 37243-1153
After submitting all required documents and meeting the criteria, your facility will undergo an on-site inspection to ensure it aligns with your application.
Following the facility inspection, there will be a final review of your application, background, supporting documents, and facility findings. Once approved, you will receive your auto dealer license within fourteen (14) business days.
The authorities work diligently to expedite the process, aiming to grant you the official auto dealer license as quickly as possible. The overall process involves thorough documentation, facility inspection, and final review to ensure compliance and eligibility for the license.
Verifying that your dealership is licensed and that you follow regulations can make your clients confident hence you may need to verify it. You can verify your license with the Motor Vehicle Commission’s search. Here you will type in the name of your dealership, its address and your license number. After hitting search you will then get a document with information on any active licenses you have.
