South Dakota Auto Dealer Bond: A Comprehensive Guide

October 28th, 2020

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

At a Glance:

• Average Cost: 0.5% – 5% of the bond limit per year, based on the business owner’s
• Bond Amount: 
  • $5,000 for snowmobile and motorcycle dealers
  • $10,000 for trailer or emergency vehicle dealers
  • $20,000 for boat dealers
  • $25,000 for new or used motor vehicle dealers and mobile/manufactured home dealers (most common)
• Who Needs It: All individuals and businesses that sell or deal in 5 or more motor vehicles in a 12 month period
• 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 South Dakota: The South Dakota Department of Revenue (DOR)

Background

South Dakota Codified Law 32-6b mandates auto dealers operating in the state to obtain a motor vehicle dealer license with the DOR. The South Dakota 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 $5,000, $10,000, $20,000 or $25,000 motor vehicle dealer surety bond to be eligible for licensure.

What is the Purpose of the South Dakota Auto Dealer Bond?

South Dakota 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 South Dakota. 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 South Dakota Auto Dealer Bond?

BondExchange makes obtaining a South Dakota 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 ensure 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 South Dakota Auto Dealer Bond Cost?

The $25,000 South Dakota Motor Vehicle Dealer surety bond can cost anywhere between $125 to $1,250 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 $25,000 bond requirement.

$25,000 South Dakota 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 South Dakota Define “Motor Vehicle Dealer”?

To paraphrase South Dakota Codified Law 32-6b-1, a motor vehicle dealer is any person or business entity who sells or deals in 5 or more motor vehicles in a 12-month period, either directly or indirectly, for-profit/commission.

How Do Auto Dealers Apply for a License in South Dakota?

Dealers in South Dakota must navigate several steps to secure their motor vehicle dealer license. Below are the general guidelines, but dealers should refer to the Dealer Requirements Packet as well as the Procedures Manual for details on the process.

License Period – The South Dakota Dealer License is technically valid for 5 years, but dealers will have to submit a renewal application and pay a renewal fee each year. South Dakota has a staggered license system, meaning that dealers will be assigned an expiration date when they are issued their initial license.

Step 1 – Determine the License Type

South Dakota 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 South Dakota Dealer License.

• • Vehicle Dealer – Sells new or used motor vehicles
  • Used Vehicle Dealer – Sells used motor vehicles only
  • Mobile/Manufactured Home Dealer – Sells mobile/manufactured homes
  • Motorcycle Dealer – Sells motorcycles
  • Snowmobile Dealer – Sells snowmobiles
  • Trailer Dealer – Sells trailers
  • Boat Dealer – Sells boats
  • Emergency Vehicle Dealer – Sells emergency vehicles (ambulance, firetruck, etc)

Step 2 – Establish a Location

Before dealers can obtain their dealer license they must first buy or lease a permanent business location. The location must meet the following requirements:

• • Enclosed structure located in the State of South Dakota
  • Easily accessible and open to the public at all reasonable times
  • Hours of operation posted in an easy to view area
  • Display lot large enough to display at least 5 motor vehicles
  • Office space that is separate from all other businesses
  • Working telephone number listed in the name of the business

Step 3 – Obtain Zoning Approval

Dealers must obtain written approval from their local zoning official certifying that their business location is in compliance with all applicable zoning regulations. Dealers must submit this approval with their application.

Step 4 – Pass Inspection

A representative from the South Dakota DOR must inspect the dealer’s business location and certify that it complies with all of the minimum requirements before a dealer can be issued their license

Step 5 – Obtain Insurance

Vehicle, Used Vehicle, and Motorcycle Dealers must purchase and maintain public liability insurance with a minimum limit of $300,000. Dealers will need to submit proof of insurance with their application.

Step 6 – Purchase a Surety Bond

Dealers must purchase and maintain either a vehicle dealer surety bond in the following amounts based on the license type:

• • $5,000 for snowmobile and motorcycle dealers
  • $10,000 for trailer or emergency vehicle dealers
  • $20,000 for boat dealers
  • $25,000 for new or used motor vehicle dealers and mobile/manufactured home dealers (most common)

Step 7 – Complete the Application

All dealer regulatory license applications should be mailed to:

State of South Dakota
Motor Vehicle Division
445 E. Capitol Avenue
Pierre, SD 57501

Dealers must complete the Dealer Application, including the following steps.

• • 7.a Lease – Dealers who lease their business location must submit a copy of their lease with their application
  • 7.b Franchise Agreement – Dealers who sell new motor vehicles must submit a copy of their franchise agreement with their application authorizing them to sell each make and model of new motor vehicle

Step 8 – Pay Fees

The following fees are associated with obtaining and renewing the South Dakota Dealer License:

Step 9 – Obtain Dealer Plates

After the dealer’s application has been approved, they can then obtain dealer plates corresponding to their specific license type. Dealers can apply for dealer plates here.

How Do South Dakota Auto Dealers Renew Their License?

The South Dakota Dealer License is technically valid for 5 years, but dealers will have to submit a renewal application and pay a renewal fee each year. South Dakota has a staggered license system, meaning that dealers will be assigned an expiration date when they are issued their initial license.

Dealers will be mailed a renewal notice 3 months prior to their license expiration date. Dealers should bring the completed renewal notice and the required renewal fees to their local County Treasurer’s office.

What Are the Insurance Requirements for the South Dakota Auto Dealer License?

The State of South Dakota requires most dealers to maintain public liability insurance with a minimum limit of $300,000. Dealers also must file a surety bond in amounts based on the license type.

How Do South Dakota Auto Dealers File Their Bond?

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

State of South Dakota
Motor Vehicle Division
445 E. Capitol Avenue
Pierre, SD 57501

Both the surety company that issues the bond and the auto dealer will need to sign the bond. The surety company should include the following information on the bond form:

• Legal name and address of entity/individual(s) buying the bond
• Surety company’s name, address, and phone number
• Bond amount
• Witness signatures for both the principal and surety
• Date the bond is signed

How Can South Dakota 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
• Do not engage in any illegal selling practices
• Honor all warranty agreements

What Other Insurance Products Can Agents Offer Dealers in South Dakota?

South Dakota requires most motor vehicle dealers to obtain liability insurance. Most reputable dealers that provide towing or service station services should also obtain garage keeper’s liability. 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 South Dakota Auto Dealer Customers?

South Dakota unfortunately does not display motor vehicle dealer information to the public. We suggest contacting a list service company or the South Dakota Secretary of State for a list of active motor vehicle dealers. 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.