Texas Car Dealer License Guide
In this article, we’ll walk you through everything you need to get a Texas car dealer license.
What Are the Different Types of Texas Car Dealer Licenses?
The Motor Vehicle Division of the Texas Department of Motor Vehicles issues several types of dealer licenses, each of which is associated with its own General Distinguishing Number, or “GDN,” which identifies the specific type of vehicle being sold. If you will be selling more than one type of vehicle, you’ll need a GDN for each of them.
The license categories/GDNs are:
- Motor vehicle dealer (selling used motor vehicles)
- Motorcycle (user) dealer
- Travel trailer (used) dealer
- Utility trailer/semi-trailer (new or used) dealer
To sell new vehicles in any of the above categories except for utility/semi-trailers, you will also need a franchise dealer license/GDN.
Our focus here is on the licensing of motor vehicle dealers selling only used vehicles.
What Are the Steps in the Licensing Process?
Before completing and submitting your application for a standard dealer license, you will need to accomplish these tasks:
- Establish a legal business entity and register it with the County Clerk (if a sole proprietor or general partnership) or with the Secretary of State’s Office (for all other types of entities).
- Obtain a Federal Employer Identification Number (FEIN) from the IRS.
- Complete a six-hour online training course.
- Secure a permanent business location that meets state requirements, including internet access to facilitate the issuance of temporary tags.
- Purchase the necessary liability insurance and, if you will have employees, Workers’ Compensation insurance.
- Purchase a two-year Texas auto dealer bond in the amount of $50,000.
- Pay the dealer license fee (currently $700) and dealer plate fees (currently $90 each).
Once you have accomplished all of the above and are ready to complete your dealer license application, you will do so using the Texas eLICENSING system.
Why is a Texas Car Dealer Bond Required?
When you purchase a Texas car dealer bond you are giving the state of Texas your pledge to operate your dealership in full compliance with all applicable Texas laws and regulations governing vehicle sales. You are also entering into a legally binding contract with two other parties: the state (the “obligee” requiring the bond) and the company guaranteeing the bond (the “surety”). You, the dealer, are referred to as the “principal” and are legally obligated to compensate any party suffering financial harm as a result of your violation of any of those laws or regulations. There must be an active bond in force at all times to provide financial protection for the state and the public and prevent suspension or revocation of your dealer’s license.
How Are Texas Car Dealer Bond Claims Paid?
The surety’s guarantee is a guarantee that all valid claims will be paid—by you, the bond’s principal. The surety is indemnified against any responsibility for claims. To expedite matters, the surety will pay any legitimate claim on your behalf, but you must then repay the resulting debt to the surety. If you don’t, the surety can take legal action against you.
How Much Does a Texas Car Dealer Bond Cost?
The annual premium for a Texas car dealer bond is a small percentage of the $50,000 required bond amount. The surety will determine what that percentage, your premium rate, will be based on an underwriting assessment of the risk that you won’t repay the surety for claims paid on your behalf.
The best measure of that risk is your personal credit score. The better your credit, the lower your premium rate. The reverse is also true, as a low credit score suggests a higher risk that you won’t repay the surety promptly.
With good credit, your premium rate is likely to be in the range of one to two percent, making the annual premium between $500 and $1,000.
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