Massachusetts Car Dealer License Guide

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Surety Bond Professionals is a family owned and operated bonding agency with over 30 years of experience. With access to a broad range of surety markets, our expert agents are ready to assist with all of your Massachusetts car dealer bond needs. Learn how to get a Massachusetts car dealer license and contact us today to request a quote on the bond you need.

What Are the Different Types of Massachusetts Dealer Licenses?

There are three classes of car dealer licenses in Massachusetts:

  • Class I licenses permit the sale of both new and used vehicles.
  • Class II licenses are for dealers selling used vehicles only.
  • Class III licenses are for salvage parts dealers.

This article focuses exclusively on obtaining a Class II license.

What Are the Steps in the Licensing Process?

Massachusetts is a little unusual in that the requirements for dealer licensing have been established at the state level by the Massachusetts Registry of Motor Vehicles (RMV), the actual licensing of car dealers is handled locally, following state law. In some jurisdictions license applications can be completed and submitted online, while others use paper applications only. 

Although procedures vary from one municipality to the next, they all involve:

  • Forming and registering a business entity and obtaining a tax ID number
  • Getting local zoning approval for the business location
  • Undergoing a criminal background check by the Massachusetts Department of Criminal Justice
  • Purchasing liability insurance covering the vehicles to be sold
  • Purchasing Workers’ Compensation insurance if applicable
  • Purchasing a $25,000 Massachusetts car dealer bond

The completed application package, all supporting documents, and the licensing fee (which varies by jurisdiction) must be submitted to the local licensing authority.

Why is a Massachusetts Car Dealer Bond Required?

There are several reasons for the bonding requirement:

  • The bond guarantees that the dealer complies with all applicable Massachusetts laws and pays all taxes and fees owed to the Commonwealth.
  • It indemnifies local licensing authorities against liability for damages resulting from a licensed dealer’s unlawful or unethical actions
  • It provides a source of funds for paying valid claims filed against the bond by any injured party

Failure to maintain an active Massachusetts car dealer bond at all times can result in revocation of the dealer’s business license.

How Are Massachusetts Car Dealer Bond Claims Paid? 

There are three parties to the legally binding surety bond agreement for a Massachusetts car dealer bond: 

  • The “obligee” requiring the bond is the Common wealth of Massachusetts, 
  • The “principal” who must purchase the bond is the car dealer, and 
  • The “surety” is the company guaranteeing the payment of claims. 

The surety guarantees the payment of claims, but the principal is legally obligated to pay them. While the surety usually pays a claim initially, the principal is obligated to repay the resulting debt to the surety. 

How Much Does a Massachusetts Car Dealer Bond Cost?

The annual premium for a Massachusetts car dealer bond is a small percentage of the required $25,000 bond amount, that percentage being the premium rate, which is assigned by the surety. The primary factor in determining the premium rate is the principal’s personal credit score, which is a measure of the risk involved in extending credit to the principal by paying claims on the principal’s behalf.

There is an inverse relationship between the principal’s personal credit score and the premium rate: the higher the credit score, the lower the premium rate and vice versa. Those with good credit could be assigned a premium rate as low as one percent.

Our surety bond professionals will get you the Massachusetts car dealer bond you need at a competitive rate.