What are sales tax bonds?
Sales tax bonds are surety bonds that businesses or individual professionals purchase to guarantee tax payments to the state or local government. They also ensure taxes are filed each year by the deadlines. These bonds go by various names, depending on the state, including bond of seller (California), continuous bond of seller (Texas), or sales and use tax bond (Missouri).
This bond provides financial security for the governing authority that requires it. Businesses often required to purchase these types of bonds include merchants and retailers. Specific types of sales tax bonds include:
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Quick Takeaways
- Sales tax bonds are surety bonds that businesses or individual professionals purchase to guarantee tax payments to the state or local government.
- Specific types of sales tax bonds include fuel tax bonds, alcohol bonds, cigarette tax bonds, and marijuana bonds.
- Sales tax bond requirements vary by state and often depend on your annual sales tax liability or sales receipts.
Who needs a sales tax surety bond?
Various states and local governing authorities require businesses to post a sales tax bond to operate legally. You may need this bond if you sell or distribute alcohol, cannabis, tobacco products, or fuel.
Types of Sales Tax Surety Bonds
Alcohol Bond
There are two categories of alcohol bonds: state and federal. The Alcohol and Tobacco Tax and Trade Bureau requires alcohol bonds as part of the federal licensing process. If you sell, manufacture, or distribute alcohol, you may need a wine, distilled spirits, or brewer’s bond to ensure you pay federal taxes. Your state may also require a liquor bond to guarantee you file taxes on time with the state.
Marijuana Bond
Some states require businesses to post a marijuana bond before they may operate a medical or retail marijuana dispensary, testing lab, cultivation facility, processing facility, or pharmacy. This bond helps regulate the marijuana industry across the country by ensuring businesses follow state laws and industry regulations.
Cigarette Tax Bond
Some states require businesses selling cigarettes and tobacco products to post a cigarette tax bond. Again, this requirement helps ensure that companies pay taxes and operate legally.
Fuel Tax Bond
A fuel tax bond holds fuel sellers accountable by ensuring they abide by the law and pay their taxes properly. Fuel sellers must pay taxes on distributing, mixing, and selling fuel.
Frequently Asked Questions
How do sales tax bonds work?
A sales tax bond is a three-party contract involving a principal, an obligee, and a surety.
- Principal: The business owner who purchases the bond and is responsible for abiding by its terms
- Obligee: The state or local governing authority that requires the bond to ensure the principal pays taxes
- Surety: The financial company that issues the bond and backs it financially in case of claims
If you fail to follow the bond’s terms (e.g., you don’t pay enough taxes or miss a filing deadline), a claim may be filed against your bond. If the claim is valid, your surety will step in to cover the costs to settle. However, you must repay your surety – up the full bond amount.
How much do sales tax bonds cost?
Each state sets specific bond requirements and regulations so pricing can vary from state to state. As a rule of thumb, your sales tax bond requirement (amount) will depend on your annual sales tax liability or sales receipts. Consult with the government agency that requires the bond to determine the exact requirements.
Your bond premium (the amount you pay) will be a fraction of the bond amount. Your surety will examine your personal and business financials, creditworthiness, and other business information to set your premium rate. Generally, the better your credit score and financial situation, the lower your premium will be.
For example, if you need a $10,000 bond and have an excellent credit score, you could pay as little as 1% of the bond – or $100.
Contact ZipBonds for more information or to apply for the bond you need today! Just call (888) 435-4191, and one of our agents will be glad to assist you.
Apply for Your Sales Tax Bond
ZipBonds offers the fastest and most secure option for getting the surety bonds you need. Our all-digital platform is intuitive and straightforward. Apply today online or call us at 888.435.4191 to speak with an agent.
About ZipBonds.com
Founders Ryan Swalve and Zach Mefferd formed the vision for ZipBonds.com when they realized how overly complicated it was to help clients place surety. The frustration of being unable to incorporate the technology they’d used in other insurance-focused projects left them thinking “there has to be a better way.”
Fast forward a couple of years, and that better way is the impetus of everything we do at ZipBonds. We constantly look for innovative ways to improve the bonding process for our clients and agents. Our team comprises individuals who understand all angles of surety – for companies, agencies, and individuals. Incorporating everyone’s point of view to improve the process while simultaneously integrating cutting-edge technology is what sets our business apart.