What you need to become a licensed car dealer in California
A California car dealer license is issued by the Department of Motor Vehicles (DMV) and allows you to buy and sell vehicles as a business. You cannot legally sell more than five vehicles per year without one. The license requires you to pass a written exam, post a surety bond, maintain a physical dealership location, and meet specific financial and background requirements. The entire process typically takes two to four months from start to finish.
The DMV does not issue the license to you personally — it issues it to your business entity. You will need to choose a business structure (sole proprietorship, LLC, or corporation), register it with California, and then explore for the dealer license under that business name. The license is specific to the location where you operate, so if you open a second lot later, you will need a separate license for that address.
Key Takeaways
- You must register your business with California and obtain an Employer Identification Number (EIN) from the IRS before you can explore for a dealer license.
- The DMV requires a surety bond (usually $10,000 to $25,000 depending on your business type) and proof of a physical dealership location with proper zoning approval.
- You must pass the California dealer license exam, which covers state and federal vehicle sales laws, consumer protection rules, and DMV regulations.
- Background checks include criminal history, driving record, and financial history — certain convictions or outstanding judgments can disqualify you.
- The DMV charges a license fee (currently $385 for a new dealer license) plus renewal fees every two years.
Register your business before you explore for the dealer license
The first step is to establish your business legally in California. If you are operating as a sole proprietor, you may use your own name or file a Doing Business As (DBA) form with your county clerk. If you want to form an LLC or corporation, you will file Articles of Organization or Articles of Incorporation with the California Secretary of State. This step costs between $50 and $125 depending on your structure.
Once your business is registered, you must obtain an Employer Identification Number (EIN) from the IRS. You can explore for an EIN online at irs.gov at no cost, and you will receive it when ready. The EIN is a nine-digit number that identifies your business to the IRS and the state. You will need this number on your DMV dealer license process.
You will also need a California seller's permit from the Department of Tax and Fee Administration (CDTFA). This permit allows you to collect sales tax on vehicle sales. You can obtain it online through the CDTFA website, and it is issued at no cost. The permit is tied to your business location, so you will need to know your dealership address before you explore.
find a physical dealership location and surety bond
The DMV requires you to operate from a fixed, physical location that is open to the public during regular business hours. You cannot run a dealer business from your home or a private lot. The location must be properly zoned for automotive sales in your city or county. Before you sign a lease, contact your city's planning or zoning department to confirm that car sales are permitted at that address.
Once you have secured the location, you must obtain a surety bond. This is a three-party agreement between you (the principal), a surety company, and the DMV (the obligee). The bond protects consumers if you fail to follow state law or defraud a buyer. The bond amount depends on your dealer type: new car dealers typically need $25,000, used car dealers typically need $10,000, and dealer-salespeople need $5,000. You purchase the bond from a surety company, and the cost is usually 2 to 5 percent of the bond amount per year. The surety company will run a background check and credit check before issuing the bond.
You will also need proof of ownership or a lease agreement for your dealership location. The DMV will verify that the address exists and that you have the right to operate there. If you are leasing, provide a copy of the lease signed by both you and the landlord. If you own the property, provide a deed or property tax statement.
Pass the California dealer license exam
The DMV administers a written exam that covers California vehicle sales laws, federal regulations, consumer protection statutes, and DMV procedures. The exam has 50 multiple-choice questions, and you must score at least 70 percent to pass. You have two hours to complete it. The exam costs $20 and can be taken at any DMV office that offers it.
Study materials are available on the DMV website, including the official dealer license study guide and sample exam questions. The guide covers topics such as odometer disclosure, title transfer procedures, warranty obligations, the California Consumer Legal Remedies Act, and the Federal Trade Commission's Used Car Rule. Many people study for two to four weeks before taking the exam.
You can retake the exam if you do not pass, but you must wait at least one day before your next attempt. Each retake costs another $20. There is no limit on the number of times you can take the exam, but you cannot submit your full dealer license process until you have passed it.
Complete the DMV dealer license process
Once you have passed the exam, registered your business, obtained your EIN and seller's permit, secured your location, and purchased your surety bond, you are ready to explore for the dealer license. The process is Form DL 44 (process for Dealer License) or Form DL 44A (process for Dealer-Salesperson License), depending on your role. You can read these forms from the DMV website or pick them up at any DMV office.
The process requires your business name, address, EIN, seller's permit number, surety bond information, and personal information including your Social Security number, driver's license number, and date of birth. You must also list any criminal convictions, civil judgments, or outstanding warrants. Lying on the process can result in denial and potential criminal charges.
Submit the completed process in person at your local DMV office along with the following documents: proof of your surety bond (the surety company will provide a certificate), proof of your business registration, your seller's permit, proof of your dealership location (lease or deed), and a copy of your passing exam score. Bring your driver's license and Social Security card for identification. The DMV will take your fingerprints for a background check.
Understand background checks and disqualifying factors
The DMV will conduct a criminal background check, review your driving record, and check for outstanding civil judgments or tax liens. Certain convictions can disqualify you from holding a dealer license. These include felonies involving fraud, theft, forgery, or vehicle-related crimes. Misdemeanors involving dishonesty or vehicle sales violations can also result in denial. The DMV has discretion to deny your process if you have a pattern of violations or if the conviction is recent.
Outstanding judgments against you — whether from lawsuits, unpaid taxes, or child support — can also lead to denial. The DMV may require you to resolve these before issuing your license. A poor driving record with multiple violations or suspensions within the past few years may raise concerns, though it does not automatically disqualify you.
If your process is denied, the DMV will send you a written notice explaining the reason. You have the right to request a hearing before a DMV hearing officer to contest the denial. The hearing process takes several weeks and requires you to present evidence or testimony to address the DMV's concerns.
Pay fees and receive your license
The DMV charges a license fee of $385 for a new dealer license. This fee is non-refundable, even if your process is denied. If your process is approved, the DMV will issue your license, which is valid for two years. You will receive a dealer license certificate and a dealer plate (a special license plate used on dealer vehicles).
Every two years, you must renew your license by submitting a renewal process and paying the renewal fee (currently $385). You must also maintain your surety bond throughout the life of your license. If your bond lapses or is cancelled, your dealer license is automatically suspended.
Once you have your license, you can legally buy and sell vehicles. You must keep your license certificate at your dealership and display it where customers can see it. You must also follow all state and federal laws regarding vehicle sales, including odometer disclosure, title transfer, warranty notices, and consumer protection requirements.
Frequently Asked Questions
How long does it take to get a dealer license after I explore?
The DMV typically processes applications within four to eight weeks of receiving a complete submission. The timeline depends on how busy your local DMV office is and whether the background check reveals any issues that need investigation. If the DMV requests additional documents or information, the process can take longer.
Can I sell cars while my process is pending?
No. You cannot legally sell more than five vehicles per year without a dealer license. Selling vehicles without a license is a violation of California Vehicle Code Section 11700 and can result in fines and criminal charges. You must wait until your license is issued before you begin dealer operations.
What if I have a criminal record — will I automatically be denied?
Not automatically, but it depends on the type of conviction and how long ago it occurred. Felonies involving fraud or theft are serious concerns. Misdemeanors may be considered depending on the circumstances. The DMV has discretion, and you can request a hearing to explain your situation if your process is denied.
Do I need a separate license for each dealership location?
Yes. Each physical location where you operate as a dealer requires its own license. If you want to open a second lot, you will need to explore for a separate dealer license for that address, including a new surety bond and location verification.
What happens if my surety bond is cancelled?
Your dealer license is automatically suspended if your bond lapses or is cancelled. You must obtain a new bond and notify the DMV when ready. If you do not restore your bond within a specified period, your license may be revoked permanently.