In Colorado, car dealers must obtain a license to ensure they meet basic ethical and financial standards, tax regulations, and other requirements. This system sets the grounds for fair business practices, reduces fraud risks, and protects consumers from possible fraud and other unethical behavior from car dealers.
In this article, you will find all the information you need to apply for your dealer license in Colorado.
Colorado’s car dealer licenses are issued by the Auto Industry Division (AID), a Colorado Department of Revenue branch. Aspiring dealers need to be in good financial standing before applying for a dealers license in Colorado.
All dealers must prove they have at least a $100,000 personal net worth. To calculate this, you need to list all your assets, such as the value of your home, cars, money in the bank, and other property. Then, you have to list your liabilities, such as any loans, mortgages, and other debts you may have. The difference between your assets and liabilities establishes your net worth.
If your business will be a partnership, corporation, or LLC, each partner or business associate must submit a financial condition statement (form DR 2114).
In addition, you must have a credit score over 700. These requirements are set to ensure dealers are solvent and financially responsible. Dealer applications from people not meeting these requirements won’t be approved.
Before applying, attending a pre-licensing training course and passing an auto industry mastery exam is mandatory. The pre-licensing training course is offered by the Colorado Independent Automobile Dealers Association (CIADA).
The auto industry mastery exam is taken online at the State of Colorado Motor Vehicle Board’s website.
Once you have completed the pre-licensing training, you will obtain a certificate of attendance that you will have to include attached to your dealer application. Besides, after you pass the Mastery Exam, you will have to fill out form DR 2097, “Examination Affidavit,” and submit it along with your dealer application.
You will also need to obtain a Certificate of Good Standing from the Colorado Secretary of State to certify that your business entity is considered in “Good Standing” with the state of Colorado, with no pending issues that must be resolved before obtaining your license.
It’s essential to note that during the application process, the AID will conduct a background check for all candidates. Therefore, all prospective dealers must disclose whether they have pled no contest or been convicted of any misdemeanor or felony offenses in the last 10 years. It’s also crucial to report any other events that may have occurred before, as they can affect the approval of your license. Additionally, the AID will collaborate with the Colorado Division of Child Support to identify non-compliance cases, which can delay or put the application processes on hold.
Finally, you and every stakeholder owning more than 5% of the business must conduct a fingerprint verification and complete a DR 2197 form.
The final step before applying for your car dealer license is registering your business with the Colorado Department of Revenue. You can access all the necessary information for tax registration and the form CR 0100AP through the state’s MyBizColorado portal.
Once you have met the requirements described above, you are ready for the final steps in your Colorado license application.
To submit your application, you will need to complete a DR 2109 form. If your business will be a corporation, partnership, or LLC, you must also fill out a DR 2109-B form for each owner, stockholder, partner, LLC member, director, or officer owing 5% or more of the business.
Along with your application, you must include a copy of a valid ID issued by the state of Colorado, like a driver’s license, for all owners, including yourself and everyone listed in the additional DR 2109B forms. If you are a sole business owner, you only need to provide a copy of your ID for identity verification purposes.
All applicants and individuals owning 5% or more of the business must submit form DR 4679. This form is required because, according to the state of Colorado, obtaining a car dealer license is considered a benefit granted by the state, and these types of benefits are only for U.S. citizens or people with a legal residence or who comply with U.S. residential laws.
When applying for your car dealer license, you must have an established place of business and a business name. Besides, you will need to provide some information about your business operation, and corporations and LLCs must supply additional information. In this section, you will find what paperwork related to your business is required when submitting your application.
You will have to establish where you will be running your business. This means that you must buy, lease, or rent a property meeting your county’s local zoning before applying for your dealer license. The location must comply with these requisites:
As part of the application, you must also prepare and submit a comprehensive business plan, including information about your staff, hours of operation, sales projections, inventory purchases, floor-planning, financing plans, and/or lines of credit, among other relevant details.
Partnerships, Corporations, LLCs, or LLPs must submit these additional documents:
If you will be selling new vehicles, you must present a franchise agreement with the automaker you will be working with, an intention of purchase letter, or any other document that proves that you are authorized by the brand to run a dealership under their name.
The last step before submitting your application is hiring a surety bond of $50,000 for new and used auto dealers or wholesalers and $5,000 for trailer dealers that weigh up to 2,000 pounds. A surety bond ensures your customers and the state of Colorado that the affected parties will always be compensated if you or your business fail to comply in case of conflict.
The good thing about surety bonds is that you don’t have to deposit all that money upfront; you only pay an annual premium of about 1 to 3 percent of the total, depending on your credit score, and the bonding company acts as your warrant to the state of Colorado.
You must hire a surety bond from a reputable bonding company on behalf of your business and send a copy of the policy or certificate of coverage along with your application.
Once you have gathered all the documentation, received your sales tax number, and obtained your business location, you are ready to submit your dealer application by mail to the Colorado Department of Revenue Auto Industry Division. Along with your application, you must send a check for the licensing fees under the name of the Department of Revenue.
This is not intended as legal advice. If you have questions about dealer licensing requirements, please seek the assistance of legal counsel.
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