Massachusetts Used Auto Dealer Bond: A Comprehensive Guide

October 20th, 2020

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

At a Glance:

• Average Cost: $150 – $1,250 per year, based on the business owner’s credit
• Bond Amount: $25,000
• Who Needs It: All individuals and businesses that sell or deal in used 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 Massachusetts: The Massachusetts Registry of Motor Vehicles is the ultimate authority, but all licenses are issued by the dealer’s local licensing office

Background

Massachusetts General Laws Part I, Title XX, Chapter 140 mandates used auto dealers operating in the state to obtain a used motor vehicle dealer license with their local licensing authority. The Massachusetts 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 a $25,000 second-hand motor vehicle dealer surety bond to be eligible for licensure.

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What is the Purpose of the Massachusetts Auto Dealer Bond?

Massachusetts 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 Massachusetts. 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 Massachusetts Auto Dealer Bond?

BondExchange makes obtaining a Massachusetts 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 Massachusetts Auto Dealer Bond Cost?

The $25,000 Massachusetts Second Hand Motor Vehicle Dealer surety bond can cost anywhere between $150 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 Massachusetts Used 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 Massachusetts Define “Used Motor Vehicle Dealer”?

To paraphrase Massachusetts General Laws Part I, Title XX, Chapter 140 Section 58, a used motor vehicle dealer is any person whose primary business is the buying or selling of used motor vehicles either directly or indirectly.

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

The process for applying for a motor vehicle dealer license in Massachusetts is pretty complex. Below are the general guidelines, but dealers should refer to the Licensing Statutes for details on the process.

Dealers in Massachusetts are licensed locally, meaning that each licensing municipality will have its own specific requirements. For example, the Police Commissioner in Boston issues licenses for dealers operating within the city, and these requirements will be different from other localities. Dealers should contact their local licensing authority before beginning the application process.

License Period – The Massachusetts Used Dealer License expires on January 1 each year regardless of the date of issuance and must be renewed before the expiration date

Step 1 – Determine the License Type

Massachusetts has three different types of dealer licenses:

• • Class 1 – Dealers selling new motor vehicles
  • Class 2 – Dealers selling used motor vehicles
  • Class 3 – Dealers who remodel, modify or sell the parts of used motor vehicles

This article focuses solely on the Class 2 dealer license, dealers can find more information on Class 1 and Class 3 dealer licenses here.

Step 2 – Determine the Licensing Authority

The first step in obtaining a dealer license is to determine the local municipality that issues the license. Dealers can find a list of all Massachusetts municipalities here.

Step 3 – Establish a Location

Dealers must establish a place of business that is suitable for the sale and display of used motor vehicles. Dealers should contact their local licensing authority for the specific requirements needed for their business location. The location should contain all books and records related to the dealer business.

Step 4 – Purchase a Surety Bond

Dealers must purchase and maintain a $25,000 second-hand motor vehicle dealer surety bond.

Step 5 – Complete the Application

All new dealer regulatory license and renewal applications should be either mailed or delivered to the dealer’s local licensing office. Dealers can view the application form for the Boston Dealer License as a reference for what to expect.

• • 5.a Zoning – Most municipalities will require dealers to submit a zoning application form certifying their business location is in compliance with all applicable zoning regulations
  • 5.b Business Type – Dealers will most likely be required to submit either their articles of incorporation or organization indicating the dealer’s business structure (corporation, LLC, LLP, etc)
  • 5.c Tax Number – Most municipalities will require dealers to submit their Employer Identification Number (EIN). Dealers can obtain an EIN through the IRS here.
  • 5.d Purchase/Sale Agreement – Dealers should be prepared to submit a purchase and sale agreement with their application
  • 5.e Lease Agreement – Dealers who rent/lease their business location will most likely be required to submit a copy of their lease
  • 5.f Worker’s Compensation Insurance – All businesses operating in the State of Massachusetts and have employees must acquire worker’s compensation insurance. Dealers will need to submit a Worker’s Compensation Insurance Affidavit with their application
  • 5.g Pictures – Most dealers will need to submit photographs of their business location with their application

Step 6 – Pay Fees

Each municipality has the authority to determine the fees associated with obtaining the dealer license; however, the Massachusetts Registry of Motor Vehicles dictates that the application fee cannot exceed $200.

Step 7 – Pass Inspection

The Massachusetts Registry of Motor Vehicles grants each municipality the right to inspect a dealer’s business any time and without reason. In some jurisdictions, dealers may have to pass an initial inspection before receiving their license.

How Do Massachusetts Auto Dealers Renew Their License?

The Massachusetts Used Dealer License expires on January 1st of each year regardless of the date of issuance and must be renewed before the expiration date. Dealers should receive their renewal application from their local licensing authority and can mail or drop off their renewal application at their local licensing authority’s office. The second-hand motor vehicle dealer bond is continuous, meaning that the dealer does not need to provide a new bond at their license renewal; however, the bond should be renewed to avoid cancellation.

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

Massachusetts requires all dealers with employees to obtain worker’s compensation insurance coverage for each employee. Dealers must also file a $25,000 motor vehicle dealer surety bond.

How Do Massachusetts Auto Dealers File Their Bond?

Dealers should mail or deliver the completed bond form, including the power of attorney, to their local licensing authority’s office.

The $25,000 Auto Dealer 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:

• The legal name of entity/individual(s) buying the bond
• Date the bond goes into effect
• Date the bond is signed
• Surety company’s name
• Name and address of the municipal licensing authority

How Can Massachusetts 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
• 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
• Transfer the title of all vehicles sold
• Disclose the mileage and all motor vehicles offered for sale

What Other Insurance Products Can Agents Offer Dealers in Massachusetts?

Massachusetts requires all used motor vehicle dealers with employees to obtain worker’s compensation insurance. Most reputable dealers 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 Massachusetts Used Auto Dealer Customers?

Massachusetts, unfortunately, does not display motor vehicle dealer information to the public. We suggest contacting a list service company or the Massachusetts 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.