Tennessee Auto Dealer License Guide

Learn how to become licensed as a Tennessee auto dealer, and speak with an Single Source Insurance agent today about purchasing the bond you’ll need to operate as an auto dealer in Tennessee. 

What Are the Different Types of Tennessee Auto Dealer Licenses?

The Tennessee Motor Vehicle Commission (MVC) issues three different types of dealer licenses:

• Franchised motor vehicle dealer
• Used motor vehicle dealer
• Franchised motorcycle dealer

The most common of these is the used motor vehicle dealer license, which is the focus of this article.

What Are the Steps in the Licensing Process?

The first thing you’ll need to do to acquire a used motor vehicle dealer license is register your business with the Division of Business Services. Next, you’ll need to register with the Tennessee Department of Revenue to obtain a Sales & Use Tax Certificate. You may also need to get a Business Tax License from your county or city in order to pay any local taxes on the vehicles you sell.

Once you’ve accomplished these tasks, the remaining steps in the process are to:

• Establish a permanent business location that meets state requirements and obtain local zoning approval in writing.
• Purchase a two-year Tennessee auto dealer bond in the amount of $50,000.
• Purchase Garage Liability insurance with a minimum coverage of $300,000 per occurrence and obtain a certificate of insurance.
• If you will have employees, purchase Workers’ Compensation insurance.
• Complete the online application in the Department of Commerce and Insurance’s Comprehensive Online Regulatory and Enforcement System.
• Follow the application instructions to assemble all supporting documents, which can be scanned and uploaded online with your application, and payment of required fees.

After a preliminary review of your application, your dealership must pass an onsite inspection and a final application review before your Tennessee dealer license will be issued.

Why is a Tennessee Auto Dealer Bond Required?

Tennessee auto dealer bonds require licensed dealers to comply with all applicable state laws, which helps ensure the integrity of Tennessee’s auto trade and provides protection for both the state and consumer.

Any financial loss to the state or consumer resulting from a dealer’s unlawful sales practice can result in a claim against the bond by the injured party. The dealer is legally obligated to pay all valid claims. There must always be an active bond in force to ensure continuous financial protection for the state of Tennessee and the public, so the bond must be renewed at every license renewal.

How Are Tennessee Auto Dealer Bond Claims Paid?

The dealer, known as the bond’s “principal,” is one of three parties to the legally binding surety bond agreement. The other two are the Tennessee MVC (the “obligee” requiring the bond) and the bond’s guarantor (known as the “surety”). 

Although the principal is solely responsible under the law or paying valid claims, the surety typically pays them initially and is reimbursed later by the principal.  If the debt is not repaid, the surety can take legal action against the principal to recover the funds.

How Much Does a Tennessee Auto Dealer Bond Cost?

Two factors go into calculating the annual premium for a Tennessee auto dealer bond: the $50,000 required bond amount and the premium rate established by the surety on a case-by-case basis. The premium rate is determined largely by the principal’s personal credit score, which is an indication of the relative risk of the surety not being repaid for claims paid on the principal’s behalf.

The average premium rate is in the range of one to three percent. Someone with poor credit could pay a rate of ten percent or even more.