Tennessee Auto Dealer Bond: A Comprehensive Guide

September 29th, 2020

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

At a Glance:

• Average Cost: $275 – $2,500 for a two year term, based on the business owner’s credit
• Bond Amount: $50,000
• Who Needs It: All dealers who seek to buy, sell, lease, rent, repair or exchange 5 or more motor vehicles either directly or indirectly
• Purpose: To ensure the public will receive compensation for financial harm if an auto dealer fails to comply with dealer licensing law
• Who Regulates Dealers in Tennessee: The Tennessee Department of Commerce and Insurance, Motor Vehicle Commission (MVC)

Background

Tennessee Code 55-17 requires all vehicle dealers to obtain the appropriate vehicle dealer licenses to remain compliant with state law. These statutes also require that all dealers purchase and maintain a $50,000 motor vehicle dealer surety bond to be eligible for their respective licenses.

What is the Purpose of the Tennessee Auto Dealer Bond?

Tennessee requires dealers to purchase the Motor Vehicle Dealer Bond as part of the application process for licensure. The bond protects all purchasers, sellers, financing companies, and government agencies from monetary loss stemming from any fraud or fraudulent representation, failure to comply with licensing law, and failure to pay required taxes and fees. In short, the bond is a type of insurance that protects the public if the dealer breaks the laws pertaining to motor vehicle dealers.

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

BondExchange makes obtaining a Tennessee 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, 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 Tennessee Auto Dealer Bond Cost?

The $50,000 Tennessee auto dealer bond costs between $275 to $2,500 for athe required 2 year term. 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.

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

To paraphrase Tennessee Code 55-17-102, Tennessee defines a motor vehicle dealer as anyone who sells, offers to sell, solicits or advertises the sale of motor vehicles in the State of Tennessee. Exemptions to this definition include:

• Persons appointed by or acting under the judgement of a court order
• Public officers performing their official duties
• News/advertising agencies who advertise motor vehicles as part of their regular business functions
• Banks, finance and insurance companies, garages and auto body shops who incidentally sell vehicles that come into their possession
• Persons selling unrepairable motor vehicles
• Recreational dealers operating under the provisions outlined in Tennessee Code 55-17-419

How Do Auto Dealers Apply for a License in Tennessee?

The process for applying for a motor vehicle dealer license in Tennessee is pretty complex, and each license type has its own specific set of requirements. Below are the general guidelines, but dealers should refer to the Minimum Requirements page for details on the process.

License Period – The dealer license period is valid for two years from the date of issuance, and must be renewed prior to the expiration date for dealers to continue operations.

Step 1 – Determine the License Type

Tennessee 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 Tennessee Dealer License:

• • Dismantler and Recycler – Dealers who recover parts from inoperable vehicles and dismantle/recycle them for resale
  • Mobility Dealer – Dealer who modify and/or sell modified vehicles
  • Manufacturer/Distributor – Dealers who manufacture new and unused vehicles and distribute them to franchise dealers
  • Manufacturer/Distributor Representative – An employee of a manufacturer/distributor involved in selling new vehicles as a wholesaler
  • Auction License – Dealers who operate an auction house and sell vehicles to other dealers or the public
  • Motor Vehicle/Franchise – Dealers who sell five or more new or used a year either directly or indirectly
  • Salesperson License – Any individual employed by a licensed dealer to sell motor vehicles
  • Recreational Dealer – Dealers who sell recreational vehicles either directly or indirectly

Step 2 – Establish a Location

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

• • The building/office must be at least 288 square feet and contain functioning restrooms
  • Have a display lot capable of showcasing 15 motor vehicles and have space for 3 customer vehicles to park. The display lot cannot be part of any public land and must be in the same
  • vicinity as the office
  • List the phone number and hours of operation in a place visible to the public
  • The dealer may operate 1 additional business at the same location if at least 66% of the business location is used for the sale of motor vehicles and the additional business accounts for less than 33% of the gross income for the business

Step 3 – Purchase and File a Surety Bond

Motor vehicle dealers must purchase and file a $50,000 motor vehicle dealer bond. The bond must run concurrently with the 2 year license period.

Step 4 – Ensure Zoning Compliance

Dealers must obtain a written statement from their local zoning official acknowledging their business location is in compliance with all zoning regulations.

Step 5 – Obtain a Business Tax License

Dealers must apply for a business tax license with their local County Clerk to be eligible for the dealer license.

Step 6 – Provide a Financial Statement

Dealers must provide a financial statement prepared in the name of their business showing a minimum net worth of $10,000. A compilation letter signed by a certified public accountant must accompany the financial statement. A financial background disclosure is also required for persons owning a 5% or greater stake in the business.

Step 7 – Purchase Insurance

Dealers must provide a Certificate of Garage Liability Insurance with a limit of $300,000 per occurrence. The Tennessee Motor Vehicle Commission must be listed as the certificate holder. Tennessee requires all businesses with 5 or more employees to obtain workers compensation insurance. The requirements for workers compensation insurance can be found here.

Step 8 – Erect a Sign

Dealers are required to erect a permanent sign at their business location that meets the following requirements:

• • Include the entire dealership name (including INC, LLC, LLP ect.)
  • Letters must be at least 8 inches in height
  • Permanently installed and clearly visible from the road

Step 9 – Complete the Application

All new dealer regulatory license applications and dealer regulatory license renewal applications can be completed online through the MVD’s licensing portal located here.

Dealers should include the following information with their application:

• • 9.a Business Registration –Dealers are required to obtain copies of their business registration forms when applying for the dealer license. Corporations must submit their articles of incorporation and dealers operating as an LLC, LLP or LP must submit their articles of organization. All managing partners or owners who have more than a 5% stake in the business must be listed. Out of state entities must obtain a Certificate of Authorization from the office of the Tennessee Secretary of State permitting them to do business in the state.
  • 9.b Conviction Record – All dealers who have been convicted of a felony must submit the final judgement signed by the judge with their application.
  • 9.c Salesperson Application – Any person who sells motor vehicles for the dealer’s business, including the dealer, must submit a salesperson application with the dealer application. Dealers can apply for a salesperson license online here.
  • 9.d Sales Tax – Dealers must submit a current copy of their Sales & Use Tax Certificate. Dealers can acquire this certificate from the Tennessee Department of Revenue here.
  • 9.e Service Agreement – Dealers who do not have a repair facility at their business location must obtain a service agreement with an operation repair garage located a reasonable distance from the business location.
  • 9.f Franchise Agreement – Dealers selling new vehicles must obtain a letter of acknowledgement from the manufacturer or distributor authorizing them to sell new vehicles in the dealer’s geographic area.
  • 9.g Floor Plan Form – All dealer applicants must submit the Floor Plan Form listing all current inventory financiers known as “floor planners” who work with the dealership. The Floor Plan Form can be found here.
  • 9.h Photos – The dealer must submit photos of the entire business location, including all signage. There must be photos from all entrances/exits of the building and photos taken from the street as well. All photos should be submitted digitally.

Step 10 – Pay Fees

The following fees are associated with obtaining each dealer license type:

• • Manufacturer/Distributor – $1,600 plus $50 per franchised branch
  • Franchise Dealer – $400 per vehicle line
  • Used Vehicle Dealer – $400
  • Manufacturer/Distributor Representative – $400
  • Franchise RV Dealers – $400 per vehicle line
  • Salesperson License – $35
  • Application for endorsement of change of employer by a Motor vehicle Salesperson – $35
  • Dismantler/Recycler – $400
  • Auction Dealer – $800
  • Motor Vehicle Show Permit – $200
  • Duplicate License – $25
  • Re-inspection fee – $400
  • Mobility Dealer- $400

Step 11 – Pass Inspection

Once the application is submitted dealers must pass inspection of their business location to ensure the location meets the minimum requirements (see Step 2).

Step 12 – Obtain Dealer Plates

After the dealer license is approved, dealers can apply for dealer plates. Dealers should complete the Dealer Plate Application Form and bring it to their local county clerk’s office for approval.

How Does a Tennessee Motor Vehicle Dealer Renew Their License?

Dealer licenses are valid for two years and must be renewed before the expiration date. To renew their license, dealers can submit their application electronically here. The application fees in Step 10 apply to all renewal applications. Dealers must also include a  motor vehicle dealer bond or a continuation certificate from the surety company with their renewal application.

What Are the Insurance Requirements for Tennessee Auto Dealers?

Tennessee requires all dealers to obtain garage liability insurance with a limit of $300,000 per occurrence. Businesses who employ more than 5 people must purchase workers’ compensation insurance that meets the requirements here. Dealers must also file a $50,000 motor vehicle dealer bond. 

How Do Tennessee Auto Dealers File Their Bond?

The $50,000 surety bond must be signed by both the surety company that issues the bond and the auto dealer. The bond form should include the following items:

• Legal name of entity/individual(s) buying the bond
• Physical address where the business will operate
• Surety company’s name, phone number, address and signature
• Date the bond is sealed
• Date on which the bond will be executed
• Signature of notary

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

Tennessee Motor Vehicle Commission
500 James Robertson Pkwy #2
Nashville, TN 37243

What Can Dealers Do to Avoid Claims Against the Tennessee Auto Dealer Bond?

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

• Disclose all required information when transferring ownership of a vehicle
• 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
• Register for and renew the dealer license biennially
• Adhere to the dealer license plate regulations approved by the state
• Pay the license application fees

What Other Insurance Products Can Agents Offer Dealers in Tennessee?

Tennessee requires dealers to obtain garage liability insurance on all vehicles with dealer plates with limits of $300,000 per occurrence. Most reputable dealers that provide towing or service station services should also obtain garage keepers liability. Some dealers will 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 Tennessee Motor Vehicle Dealer Customers?

Tennessee Department of Commerce and Licensing provides a search tool for motor vehicle dealers on their website. Select “Motor Vehicle Dealers” from the list of professions to search for prospects. 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.