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Texas Auto Dealer License And Bond Requirement

Texas Auto Dealer License And Bond Requirement

Texas' Independent GDN license encompasses many license types. Things can get a little confusing because franchised dealers are required to have an independent GDN license with the appropriate classification, but franchised dealers don't have to follow every requirement.

This article will focus on the Independent GDN license and classifications. It will highlight the main requirements franchised dealers don't have to follow, plus:

  • What a GDN license is
  • The License type or classifications
  • The ownership requires
  • The surety bond requirement
  • The temporary tag requirements
  • The property and dealership requirements
  • An overview of all the fees associated with the application

What Is a GDN Auto Dealer License?

Texas issues every auto dealer a GDN. This stands for a General Distinguishing Number and each GDN is associated with a different type or classification of dealer license.

When applying for license, you must select one of the independent licensing types:

  • Used motor vehicles at a dealership
  • Use motorcycles at a dealership
  • Used non-motorized travel trailers at a dealership
  • New or used utility trailers or semi-trailers at a dealership
  • New or used mobility vehicles for the transport of disabled passengers at a dealership
  • Wholesale vehicles to other licensed dealers
  • Wholesale vehicles by bid to licensed dealers at an auction located at a permanent location

In order to obtain multiple independent licensing types, each license must be applied for separately.

All independent licenses are issued for a term of 2 years at which time they can be renewed for the subsequent 2 year term.

All dealers are subject to the following similar criteria:

  • More than 5 vehicles/trailers sold, bought, or exchanged during a calendar year
  • A calendar year is January to December
  • Transactions take place at a permanent location

There are many different types of auto dealer license classifications in Texas including: used dealer, motorcycle dealer, non-motorized travel trailers, utility trailers or semi-trailers, mobility vehicles for the transport of disabled passengers, wholesale vehicles to other dealers, wholesale vehicles by auction to other dealers.

Independent Motor Vehicle Dealer

Any person or business entity who buys, sells, or exchanges:

  • More than 5 motor vehicles titled and registered in their name during a calendar year
  • From a permanent location
  • Sells a single vehicle that is not titled and registered in their name

Motor vehicles apply to:

  • Cars
  • Trucks
  • Vans
  • Buses
  • Motor homes
  • Ambulances
  • Fire-fighting vehicles

Typically these vehicles will be used vehicles, as most new vehicles sales require a franchise agreement.

Independent Motorcycle Dealer

Any individual or business entity who buys, sells, or exchanges:

  • More than 5 used motorcycles, titled and registered in their name during a calendar year
  • From a permanent location

A motorcycle refers to any two or three (in one case four) wheeled motorcycle vehicle, including:

  • Motor scooters
  • All-terrain vehicles (even though they have four weeks)
  • Recreational off-road vehicles

Independent Travel Trailer Dealer

The same requirements of 5 or more trailers per calendar year, titled and registered in the buyer or seller's name.

In this case a trailer refers to a non-motorized travel trailer. This is a trailer designed for temporary living quarters and for carrying people or property. The best examples of this type of trailer would be campers, which are also called:

  • Travel trailers
  • RV trailers
  • Pop up campers

Independent Trailer/Semi-Trailer Dealer

A trailer and/or semi-trailer for this license type refers to:

  • A vehicle without motive power
  • Designed to carry a load on its own structure
  • Designed to be pulled

A semi-trailer is a trailer that is designed to carry a load that is part of the weight of the vehicle. According to the Texas DMV the differentiator is a semi-trailer that has a load/cargo that rests on or is carried by its own structure.

The difference between the two is, trailers will typically carry smaller loads such as:

  • Enclosed lawn care or construction trailers
  • Open steel frame trailers
  • Boat trailers

Semi-trailers will be used on commercial trucks to haul cargo to a destination.

Independent Mobility Motor Vehicle Dealer

A mobility motor vehicle is a any vehicle designed and constructed to transport individuals with a physical disability. These vehicles are required to have:

  • A permanently lowered floor or raised ceiling
  • A wheelchair lift, ramp, or system to secure a wheelchair during transport

Beyond the dealer license, these licensees are required to have:

  • A converter license
  • A welder's certification or employ an approved subcontractor
  • Garage insurance policy covering at least $50,000 and a products completed operations insurance policy of at least $1 million

There are further requirements outlined by the Texas DMV.

Independent Wholesale Dealer

A wholesale dealer buys or sells motor vehicles, motorcycles, and travel trailers, (new or used) trailer/semi-trailers and transacts only with other licensed dealers with the appropriate GDN number.

No sales can be made to retail customers, only other dealers.

Independent Wholesale Auction Dealer

An individual or business entity that offers vehicles for sale by bid to licensed dealers at a permanent auction location. The individual or business entity must hold the auction and is not allowed to attend one.

Just like the wholesale dealer, all auction sales must be to licensed dealers, not the general public.

Ownership Details and Identities

All dealers, except for sole proprietors and general partnerships, are required to have a Certificate of Formation or Registration. This must be registered with the Texas Secretary of State when the business entity is formed.

Business entities and sole proprietors will need:

  • The filling number for the business entity from the Secretary of State
  • EIN (employee identification number) of the the business or ownership individuals social security numbers
  • A list of all previous GDN licenses any ownership individual or business entity has held in the past
  • Appropriate identification (driver license, passport, or Armed Forces identification) for each ownership individual

If any individual, owning member, officer or representative of a business entity has any type of criminal record, copies of court papers that detail the decision made by the court in each criminal matter must be provided.

Surety Bond Requirement

A surety bond is required for:

  • Motor vehicle licenses
  • Motorcycle licenses
  • Mobility motor vehicle licenses
  • Wholesale licenses
  • Wholesale auction licenses

The bond is not required for the either the travel trailer or trailer/semi-trailer licenses. Even though franchised dealers must obtain an Independent GDN license for their type of classification, franchised dealers do not have to purchase a surety bond.

Remember, each license requires its own application and in turn its own surety bond.

If you don't fully understand the purpose of a surety bond, let's break it down.

What is a Surety Bond?

A surety bond is an insurance policy benefiting the dealer's customers but purchased by the licensed dealer as a legal promise to follow all laws and regulations set forth by the Texas DMV and to fulfill the business obligations to customers fairly and ethically.

A surety bond is an insurance policy benefiting the dealer customer but purchased by a licensed auto dealer as a legal promise to follow all the licensing laws and regulations set forth by the Texas DMV and to fulfill the business obligations to customers fairly and ethically.

The Texas Department of Motor Vehicles requires dealers to purchase a surety bond to provide recourse to customers and the DMV should either be harmed by unethical or illegal conduct by the licensed dealer.

A surety bond, or in this case, an auto dealer bond, consists of three parts:

  • The bond amount (often called the penalty)
  • The bond rate (quoted by a surety)
  • The bond price and term

The Texas Auto Dealer Bond Amount

The bond amount for Independent GDN licenses is, $50,000.

This is also called the bond penalty because if a successful claim is made against your bond, this is the sum available to be paid out.

What does the bond protect against and what can trigger a claim?

  • Improperly transferring a title
  • Selling vehicles with a missing title
  • Misrepresenting vehicle information like milage, manufacture year, or condition
  • Stealing from customer deposits
  • Not paying the appropriate sales tax on sold vehicles

If you purposefully commit any of these acts, your customer or the Texas DMV can make a claim against your bond.

The bond amount is not the price, but it does factor into the price you'll pay.

The Texas Auto Dealer Bond Price

The bond price is calculated by the lowest rate Surety Bonds Direct will secure for you from a multitude of sureties, multiplied by the $50,000 bond amount.

The Texas auto dealer bond requires a quoted rate from a surety company to determine your price. This rate multiplied by the $50,000 bond amount is the price you pay. There are examples of pricing below.

The surety is an insurance company that writes surety bonds. There are many different sureties and each surety uses their own risk assessment to determine your rate. This risk assessment is based on:

  • Primarily your personal credit
  • Business and industry experience
  • Prior bond claims if they exist

You want to pay the lowest possible price and you want to make sure an A rated surety issued your bond.

Surety Bonds Direct is a specialized surety agency that works with multiple A rated sureties to find you the lowest possible price.

Get pricing within 24 hours by using our free quote form or calling a bond specialist at 1-800-608-9950.

Here are pricing examples based on low to average rates.

Bond Amount Surety Bond Rate Price You Pay
$50,000 0.5% $250
$50,000 1% $500
$50,000 2% $1,000
$50,000 3% $1,500
$50,000 4% $2,000

"A rated" sureties work harder for you if there's ever a claim on your bond. They'll investigate the claim with greater detail to make sure it's legitimate.

The Texas Auto Dealer Bond Term

The bond term is 2 years with an effective date that must be on the first of the month and an expiration date of the last day of the previous month.

The bond term is 2 years.

This means the bond will be active for 2 years at which time you must renew it. Renewing the bond is as simple as paying the renewal premium. Surety Bonds Direct will contact you 30 to 60 days in advance to make sure the renewal process is easy.

Temporary Tags

Texas law requires dealers to issue one temporary tag to the buyer of a vehicle.

There are 3 types of temporary tags:

  • Dealer temporary tags
  • Buyer temporary tags
  • Internet Down temporary tags

All dealers must have access to temporary tags ready to issue or an Internet Down temporary tag in the case the eTag filing system is down. Each tag contains a unique number from the temporary tag database and is typically good for up to 60 days.

Dealership and Property Requirements

There are specific requirements and rules for the dealership location, office furniture and equipment, the vehicle display area, dealership signage, hours of operation, and blue laws on Saturday and Sunday.

There are many requirements for the physical dealership location. Texas' DMV website doesn't mention a dealership inspection, but most states do send an inspector before the license can be issued.

The Texas website does mention that your property does need to be easily accessible for DMV officials.

Property Location and Structure

  • Must be able to show proof of an active lease or ownership for the property listed on the application
  • Proof of occupancy is not required but it can be requested at any time
  • A retail dealer cannot share the same building structure as a wholesaler

A retail dealer can share space with another retail dealer if:

  • No more than four dealers are in the same building structure
  • No more than eight wholesale dealers are located in the same building structure

Remember a retail dealer cannot share the same building structure as a wholesaler.

  • The building must be an enclosed structure with four walls and meet all necessary zoning requirements
  • The building can be a "portable" trailer, if the undercarriage has permanent framing and there are no wheels on the trailer
  • Personal residences are allowed as long as they are completely separate from the actual residence

Office Furniture and Equipment

Some of these requirements sound very specific, but the state wants to make your office is properly suited to server customers.

  • The office must include a desk with at least two chairs
  • Must contain a working telephone landline
  • Must have internet access
  • If sharing space with other retail dealers or wholesale dealers, each office must have it's own furniture and equipment

Vehicle Display Area

The display area can be located in a building or outside at the same physical address listed on the application.

  • The display area must be large enough to hold a minimum or 5 spaces for the type of vehicles licensed to sell. (This includes spaces large enough to hold 18 wheeler trucks if your license requires it.)
  • Sufficient lighting to see the vehicles (nothing mentioned on how this is determined)
  • Cannot be located off an official right of way unless permission was granted by the city or state
  • Display areas cannot be shared or intermingled

If the same lot is used (not shared) by two different retail dealers, a - not readily moveable - barrier must separate the lots.

Dealership Signage Requirement

Retail dealers must have a permanent sign with their business name or "doing business as" name on it.

  • The letters must be a minimum of 6 inches tall
  • The sign must be easily readable
  • It's okay to use the appropriate business identifiers such as LLC, Inc., or LP...

A temporary sign can be used while a permanent sign is waiting on order. You must be ready to show proof that a permanent sign has been ordered and is on transit.

Hours of Operation

Retail dealers can choose their own work hours during a 24 hour period. However, the following requirements must be met:

  • Retail dealers must be open for at least four consecutive hours a day
  • Retail dealers must be open for at least four days during the week
  • Wholesale dealers are required to be open at least 2 consecutive hours a day
  • Wholesale dealer are required to be open at least 2 days per week
  • The telephone must be answered from 8am to 5pm by the owner or employee during all weekdays even if the dealership location is closed

If the dealership owner or employee has emergency circumstances keeping them from the office during hours of operation, a sign must be displayed saying when the dealership will resume operations.

Blue Laws

Retail dealers cannot sell on both Saturday and Sunday. One of the days must be chosen from the outset of the dealership. There are violations for both a vehicle being offered for sale and for selling a vehicle.

Blue laws do not apply to travel trailer or trail/semi-trailer licenses.

Texas Auto Dealer Application Recap

A complete recap of the application requirements include filing with the SOS, getting your EIN number, purchasing your surety bond, making sure you have all of you property requirements set, plus having your lease or deed to your dealership property and all fees.

Texas uses an online application process. Here's a final recap of the information you need to make the application process smooth:

  • The filing number from the Secretary of State
  • The EIN number for your business or the individual social security number
  • The number of any previous GDN licenses if any
  • The surety bond number, the issuing company, the effective and expiration dates
  • The Converter license number if applying for a mobility motor vehicle dealer
  • Scanned copies of:
    • Assumed name certificate for each "doing-business-as"
    • Drivers licenses for individual and or all business owners
    • Surety bond
    • Power of attorney for the surety bond
    • Certificate of incorporation, registration, or formation filed with the Secretary of State
  • Lease or deed of the property

Call Surety Bonds Direct When You're Ready To Purchase Your Motor Vehicle Dealer Surety Bond

Call Surety Bonds Direct at 1-800-608-9950 when you're ready to get the lowest possible price on your surety bond.

When you're ready to get the lowest pricing for the surety bond (auto dealer bond) requirement, Surety Bonds Direct will help:

  • Make sure you get the lowest price for your 2 year term bond
  • Get an electronic copy for your application
  • Get the power of attorney for your application

Use our free online quote form and start the quote process in 90 seconds. If you would prefer to speak with a bond specialist, call 1-800-608-9950.


Surety Bonds Direct   Justin Richmond  

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