Minnesota Auto Dealer Bond: A Comprehensive Guide

October 7th, 2020

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

At a Glance:

• Average Cost: $250 – $4,500 per year, based on the business owner’s credit
• Bond Amount: 
  • $50,000 for motor vehicle dealers
  • $5,000 for snowmobile or boat trailer dealers
• Who Needs It: All individuals and businesses that sell or deal in 5 or more motor vehicles in a consecutive 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 Minnesota: The Minnesota Department of Public Safety, Driver and Vehicle Services (DVS)

Background

Minnesota Statutes 168.27 mandates auto dealers operating in the state to obtain a motor vehicle dealer license with the DVS. The Minnesota 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 $50,000 or $5,000 motor vehicle dealer surety bond to be eligible for licensure.

What is the Purpose of the Minnesota Auto Dealer Bond?

Minnesota 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 Minnesota. 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 Minnesota Auto Dealer Bond?

BondExchange makes obtaining a Minnesota 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 Minnesota Auto Dealer Bond Cost?

The $50,000 Minnesota Motor Vehicle Dealer surety bond can cost anywhere between $250 to $4,500 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 $50,000 bond requirement.

$50,000 Minnesota 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 Minnesota Define “Motor Vehicle Dealer”?

Minnesota Statutes 168.27 defines a motor vehicle dealer as “licensed new motor vehicle dealers, used motor vehicle dealers, motor vehicle brokers, wholesalers, auctioneers, lessors of new or used motor vehicles, scrap metal processors, used vehicle parts dealers, and salvage pools.”

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

Dealers in Minnesota must navigate several steps to secure their motor vehicle dealer license. Below are the general guidelines, but dealers should refer to the Minnesota Dealer Guide for details on the process.

License Period – The Minnesota dealer license is valid for one year from the month of issuance and must be renewed prior to the expiration date.

Step 1 – Determine the License Type

Minnesota 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 Minnesota dealer license.

• • Auction Dealer – Sells used motor vehicles at auction
  • Broker Dealer – Arranges the sale or lease of motor vehicles between the buyer and seller
  • DSB Dealer – Sells motorized bicycles, boat and/or snowmobile trailers
  • Lessor – Leases new or used motor vehicles. The leasing period must be at least 120 days or the dealer must pay sales tax on the vehicle purchase price
  • Limited Use Dealer – Tax exempt organizations who donate vehicles as a way to raise funds
  • New Dealer – Sells, leases, brokers or auctions new or used motor vehicles
  • Salvage Pool Dealer – Sells parts obtained from damaged/junked vehicles to used parts dealers only
  • Scrap Metal Dealer – Can sell the metal off of inoperable motor vehicles
  • Used Parts Dealer – Sells parts from dismantled motor vehicles
  • Used Dealer – Sells, leases, brokers or auctions used motor vehicles only
  • Wholesale Dealer – Sells motor vehicles to other licensed dealers only

***Dealers who operate in a city outside the seven-county metro area and with less than 100,000 people must acquire a separate license.***

Step 2 – Establish a Location

Dealers are required to establish a permanent place of business that is an enclosed building on a permanent foundation, connected to local sewer and water facilities. The location must also have its own address and be separate from any other business.

Step 3 – Obtain Zoning Approval

Dealers must obtain zoning verification from their local zoning official verifying their business location is in compliance with all local zoning regulations.

Step 4 – Purchase a Surety Bond

Dealers must purchase and maintain either a $50,000 surety bond for motor vehicle dealers or a $5,000 bond for snowmobile or boat trailer dealers.

Step 5 – Acquire Insurance

All dealers are required to obtain liability insurance with the following limits:

• • $30,000 per person
  • $60,000 per accident
  • $10,000 for property damage
  • $25,000 per person/$50,000 per accident under/uninsured motorist liability protection
  • $20,000 medical / $20,000 non-medical personal injury protection

Dealers with employees will also need to acquire workers’ compensation insurance.

Step 6 – Complete the Application

All dealer regulatory license applications should be mailed to:

Minnesota Department of Public Safety
Driver and Vehicle Services
445 Minnesota Street, Suite 186
St. Paul, MN 55101-5186

***Minnesota Plans on transitioning to an online application process in 2021***

• • 6.a Rental/Ownership Agreement – Dealers are required to submit the Dealer Property/Lease Verification Form with their application verifying they have a right to operate at their business location.
  • 6.b Worker’s Compensation Insurance – Dealers must submit a Certificate of Compliance Form with their application verifying that they are in compliance with Minnesota’s Workers Compensation Law.
  • 6.c Commercial Checklist – Dealers must submit the Commercial Checklist Form with their application. This form is a checklist verifying that the dealer’s business location meets all of the minimum state requirements.
  • 6.d Franchise Agreement – Dealers selling new vehicles must submit a franchise agreement with their application authorizing the dealer to sell each make and model of new vehicle offered for sale.
  • 6.e Dealer Plates – Dealers can apply for dealer plates by submitting the Dealer Plate Application Form with their application

Step 7 – Pay Fees

The following fees are associated with obtaining the dealer license:

• • $10 application fee for DSB dealers
  • $250 application fee for all other dealers
  • $86 fee per demo plate ($16 per boat/snowmobile trailers)
  • $16 fee per in-transit plate

How Does a Minnesota Motor Vehicle Dealer Renew Their License?

The Minnesota dealer license is valid for one year from the month of issuance and must be renewed prior to the expiration date. Dealers can renew their license online here.

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

The State of Minnesota requires dealers to maintain liability insurance on all vehicles with dealer plates with limits outlined in Step 4. Some dealers may need to obtain workers’ compensation insurance depending on if they have employees who are not immediate family members. Dealers must also file either a $50,000 or $5,000 motor vehicle dealer bond.

How Do Minnesota Auto Dealers File Their Bond?

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

• Legal name and location of entity/individual(s) buying the bond
• Bond amount
• Type of business (corporation, LLC, partnership, individual owner)
• Surety company’s name, address, phone number and signature
• Surety agent’s name, address and signature
• Date on which the bond will be executed and date it will expire
• Date the bond is signed

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

Minnesota Department of Public Safety
Driver and Vehicle Services
445 Minnesota Street, Suite 186
St. Paul, MN 55101-5186

How Can Minnesota 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 Minnesota?

Minnesota requires dealers to obtain comprehensive liability insurance on all vehicles with dealer plates. Most reputable dealers that provide towing or service station services should also obtain garage keepers liability. Some dealers may also be required to obtain workers’ compensation insurance. 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 Minnesota Auto Dealer Customers?

Minnesota conveniently provides a public database to search for active motor vehicle dealers in the state. The database can be accessed on the DVS 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.