Washington Auto Dealer Bond: A Comprehensive Guide

October 12th, 2020

This guide provides information for insurance agents to help new and pre-owned car dealership owners on Washington Auto Dealer bonds

At a Glance:

• Average Cost: $300 – $2,400 per year, based on the business owner’s credit
• Bond Amount: 
  • $30,000 for vehicle dealers
  • $5,000 for vessel (watercraft) dealers
• Who Needs It: All individuals and businesses that sell or deal in motor vehicles
• Purpose: To ensure the public will receive compensation for any damages should the auto dealer fail to comply with dealer licensing law
• Who Regulates Dealers in Washington State: The Washington State Department of Licensing (DOL)

Background

Revised Code of Washington 46.70 mandates auto dealers operating in the state to obtain a motor vehicle dealer license with the DOL. The Washington legislature enacted the license and regulations to ensure that dealers engage in ethical business practices and remit required taxes and fees. In order to provide financial security for the enforcement of the license law, dealers must purchase and maintain either a $30,000 or $5,000 motor vehicle dealer surety bond to be eligible for licensure.

What is the Purpose of the Washington Auto Dealer Bond?

Washington requires dealers to purchase the Motor Vehicle Dealer Bond as part of the application process for the Motor Vehicle Dealer License. The bond ensures that the public will receive compensation for financial harm if the auto dealer fails to comply with the licensing regulations and that the dealer will pay all required taxes and fees to the State of Washington. In short, the bond is a type of insurance that protects the public if the dealer breaks licensing laws.

 

How Can an Insurance Agent Obtain a Washington Auto Dealer Bond?

BondExchange makes obtaining a Washington Auto Dealer Bond easy. Simply login to your account and use our keyword search to find the “auto dealer” bond in our database. Don’t have a login? Enroll now and let us help you satisfy your customers’ needs. Our friendly underwriting staff is available by phone (800) 438-1162, email or chat from 7:30 AM to 7:00 PM EST to assist you.

At BondExchange, our 40 years of experience, leading technology, and access to markets ensures that we have the knowledge and resources to provide your clients with fast and friendly service whether obtaining quotes or issuing bonds.

How Much Does the Washington Auto Dealer Bond Cost?

The $30,000 Washington Motor Vehicle Dealer surety bond can cost anywhere between $300 to $2,400 per year. Insurance companies determine the rate based on a number of factors including your customer’s credit score and experience. We also offer easy interest-free financing for premiums over $500. The chart below offers a quick reference for the approximate bond cost on the $30,000 bond requirement.

$30,000 Washington Auto Dealer Bond Cost

*The credit score ranges do not include other factors that may result in a change to the annual premium offered to your customers, including but not limited to, years of experience and underlying credit factors contained within the business owner’s credit report.

How Does Washington Define “Motor Vehicle Dealer”?

To paraphrase Revised Code of Washington 46.70.011, a motor vehicle dealer is any person or business entity who buys, sells, manufacturers, distributes, auctions, brokers, leases or advertises the sale of motor vehicles either directly or indirectly. Exemptions to this definition include:

• Any person acting under the authority of a court order
• Public officers performing official duties
• Employees of a licensed dealer engaging in the performance of their duties
• An individual selling 4 or less personally owned motor vehicles in a 12 month period
• Any firm selling equipment for agricultural or industrial purposes
• Real Estate broker selling a mobile home

How Do Dealers Apply for a Motor Vehicle Dealer License in Washington?

The process for applying for a motor vehicle dealer license in Washington is pretty complex. Below are the general guidelines, but dealers should refer to the Washington Vehicle Dealer & Manufacturer Resource Manual for details on the process.

License Period – The Washington Dealer License is valid for one year from the date of issuance and must be renewed before the expiration date.

Step 1 – Determine the License Type

Washington requires dealers to obtain specific licenses corresponding to the nature in which the dealer’s business operates. Keep in mind that dealers will need to acquire a license for each type of business they wish to operate. Below are the different types of the Washington dealer license.

• • Motor Vehicle Dealer (Most Common) – Dealers who sell new or used vehicles either retail or wholesale
  • Vehicle Sub-Agency – Required for each branch location the dealer will operate
  • Manufactured Home/Travel Trailer Dealer – Sells mobile homes or trailers either retail or wholesale
  • Manufactured Home/Travel Trailer Sub-Agency – Required for each branch location the dealer will operate
  • Off-Road Vehicle Dealer – Sells any offroad motor vehicle other than snowmobiles
  • Snowmobile Dealer – Sells snowmobiles
  • Vessel Dealer – Sells any type of boat 16 feet or longer
  • Miscellaneous Vehicle Dealer – Sells motorcycles, electric vehicles and all other miscellaneous vehicles
  • Miscellaneous Vehicle Sub-Agency – Required for each branch location the dealer will operate

***The following steps will focus on how to obtain the Motor Vehicle Dealer License. For information on how to obtain all other Washington Dealer Licenses, click here.***

Step 2 – Establish a Location

Dealers are required to establish a permanent place of business that meets the following minimum requirements:

• • Be an enclosed building used strictly for commercial purposes
  • Comply with all local zoning requirements
  • Have a permanent business sign containing the business name and type of business (auto sales, ect.)
  • Have a working phone number listed in the directory assistance (landline or mobile is fine)
  • Be open from the hours of 10am-4pm 5 days a week at a minimum
  • Have storage space for all required records and documents

Step 3 – Purchase a Surety Bond

Dealers must purchase and maintain a $30,000 motor vehicle dealer bond.

Step 4 – Complete the Dealer Training

Dealers who plan to sell used motor vehicles only must complete an 8 hour dealer education course and submit a Certificate of Completion with their application. Used vehicle dealers can register for the dealer education program here.

Step 5 – Obtain a Background Check

All dealer applicants must submit a Personal Criminal History Statement with their application. Each owner, officer, and member of the business must submit a separate form.

Step 6 – Submit Financial Statement

Each individual listed on the application must submit a Financial/Source of Funds Statement listing their total assets and liabilities.

Step 7 – Complete the Application

Dealers can submit their application either electronically or by mail. Dealers can submit their application electronically here, or mail it to the following address:

State of Washington
Business Licensing Service
PO Box 9034
Olympia, WA 98507-9034

The application must include the following information:

• • 7.a Lease/Property Tax Statement – Dealers must submit either a signed copy of their lease if they rent their business location, or a copy of their Property Tax Statement if they own the location.
  • 7.b Addendum – Dealers must complete the Vehicle Dealer/Manufacturer Addendum and submit it with their application.

***The Motor Vehicle Dealer License is issued by the DOL, but processed by the Washington Department of Revenue’s Business Licensing Service (BLS). The dealer license information is printed on the business license provided by the BLS. What this means for dealers is that their application must withstand the scrutiny of two different agencies.***

Step 8 – Pay Fees

Dealers must pay a $975 original application fee to obtain the Motor Vehicle Dealer License. Dealers can find information on the fees for all other dealer licenses here.

Step 9 – Pass Inspection

After the dealer has submitted their application and paid the required fees, a Dealer Inspector from the DOL will contact the dealer to schedule a site inspection.

How Does a Washington Dealer Renew Their License?

The Washington Dealer License is valid for one year from the date of issuance and must be renewed before the expiration date. Dealers can renew their license online here. A list of renewal fees can be found here. Dealers who deal only in used vehicles must complete 5 hours of continuing education each renewal period with an approved education provider which can be found here.

What Are the Insurance Requirements for the Washington Auto Dealer License?

The State of Washington does not require auto dealers to maintain comprehensive liability insurance on all vehicles with dealer plates. Dealers must file either a $5,000 or $30,000 motor vehicle dealer bond.

How Do Washington Auto Dealers File Their Bond?

The surety bond requires signatures from both the surety company that issues the bond and the auto dealer. The bond form will require the following items:

• Bond type
• Legal name of entity/individual(s) buying the bond
• Physical address where the business will operate
• Name, address, phone number and signature of both the surety company and surety agent
• Date bond will be executed

Dealers should mail the completed bond form, including the power of attorney, to the following address:

Business Licensing Service
Department of Licensing
PO Box 9034
Olympia WA 98507

How Can Washington Auto Dealers Avoid Bond Claims?

To avoid claims on the Motor Vehicle Dealer Bond, dealers must follow all dealer regulations in the state, including some of the most important issues below that tend to cause claims:

• Do not engage, or allow representatives of the business to engage, in any acts of fraud
• Pay sellers of vehicles promptly and in full
• Transfer all vehicle titles when sold
• Pay taxes on time and in full. Dealers should consider setting aside tax obligations as they accrue.
• Do not engage in any illegal selling practices

What Other Insurance Products Can Agents Offer Dealers in Washington?

Washington does not require dealers to obtain comprehensive liability insurance on all vehicles with dealer plates. However, most reputable dealers will obtain liability insurance anyway. Bonds are our only business at BondExchange, so we do not issue any form of liability insurance, but our agents often utilize brokers for this specific line of business. A list of brokers in this space can be found here.

How Can Insurance Agents Prospect for Washington Auto Dealer Customers?

Washington conveniently provides a public database to search for active motor vehicle dealers in the state. The database can be accessed on the DOL site here. Contact BondExchange for additional marketing resources. Agents can also leverage our print-mail relationships for discounted mailing services.

What Other States Require Auto Dealer Bonds?

All 50 states and the District of Columbia require auto dealers to obtain an Auto Dealer Bond as a prerequisite for licensure. Insurance agents should utilize our Main MVD Page for a detailed analysis of the Auto Dealer Bond requirements nationwide.