Sales Tax Bonds

At Surety Bonds Agent, we offer a full range of surety bonds nationwide through an extended carrier network. Continue below to learn more about sales tax bonds. If you have additional questions or want to explore bonding solutions for your business, speak with one of our knowledgeable surety bond experts.

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FREE SALES TAX BOND QUOTE

What Are Sales Tax Bonds?

Every state or local government that levies a sales tax on purchases needs a way to make sure that businesses that collect sales tax from consumers remit the necessary tax payments to the taxing authority. Not all businesses are required to charge consumers sales tax on their purchases. But among the ones that are, some fail to remit sales taxes in full or on time. That’s why every taxing authority has some mechanism in place to make sure that all businesses required to collect sales tax turn the money over to the taxing authority.

In most states, sales tax bonds, also called simply “tax bonds,” provide that mechanism. Different state and local governments have different bonding requirements, and businesses that are required to collect sales tax in one state would not have to do so in another state. 

Despite the state-to-state differences when it comes to taxing sales of goods and services, sales tax bonds provide financial protection for the state or other taxing authority in the event of nonpayment of sales taxes.

Who Needs Them?

No business required to collect sales taxes can obtain or keep a business license without purchasing a sales tax bond. Businesses that sell alcohol, tobacco products, or gasoline and other fuels must purchase specialized sales tax bonds, but alcohol tax bonds, tobacco tax bonds, and fuel tax bonds all function in the same way as general sales tax bonds.

How Do They Work?

There are three parties to a sales tax surety bond agreement, which is a legally binding contract:

  • The state or local taxing authority requiring the bond is the “obligee”
  • The business owner required to purchase the sales tax bond is the “principal”
  • The company underwriting and issuing the bond is the “surety”

The surety establishes a line of credit for the principal in the required bond amount established by the obligee based on actual or estimated sales volume. The surety will extend that much credit to the principal for the purpose of payment resulting from the principal’s failure to make sales tax payments to the obligee as required.

If a settlement can’t be negotiated, the surety will tap into the principal’s credit line to pay the claim on behalf of the principal. This creates a debt that the principal must repay to the surety, usually as a series of installments over a certain period of time.

What Do They Cost?

The premium for a sales tax bond is a small percentage of the bond amount. The percentage, also known as the premium rate, is determined on a case-by-case basis and reflects the surety’s assessment of the risk of extending credit to the principal. That risk is a function of the likelihood of claims and the willingness and ability of the principal to repay the surety for any claims paid.

Applicants considered creditworthy and financially stable may pay a premium rate in the range of 1% to 3%. Those with poor credit may still be able to get bonded, but may pay a higher premium rate.

At Surety Bonds Agent, we offer a full range of surety bonds nationwide through an extended carrier network. Continue below to learn more about sales tax bonds. If you have additional questions or want to explore bonding solutions for your business, speak with one of our knowledgeable surety bond experts.

CONTACT US FOR A

FREE SALES TAX BOND QUOTE

What Are Sales Tax Bonds?

Every state or local government that levies a sales tax on purchases needs a way to make sure that businesses that collect sales tax from consumers remit the necessary tax payments to the taxing authority. Not all businesses are required to charge consumers sales tax on their purchases. But among the ones that are, some fail to remit sales taxes in full or on time. That’s why every taxing authority has some mechanism in place to make sure that all businesses required to collect sales tax turn the money over to the taxing authority.

In most states, sales tax bonds, also called simply “tax bonds,” provide that mechanism. Different state and local governments have different bonding requirements, and businesses that are required to collect sales tax in one state would not have to do so in another state. 

Despite the state-to-state differences when it comes to taxing sales of goods and services, sales tax bonds provide financial protection for the state or other taxing authority in the event of nonpayment of sales taxes.

No business required to collect sales taxes can obtain or keep a business license without purchasing a sales tax bond. Businesses that sell alcohol, tobacco products, or gasoline and other fuels must purchase specialized sales tax bonds, but alcohol tax bonds, tobacco tax bonds, and fuel tax bonds all function in the same way as general sales tax bonds.

There are three parties to a sales tax surety bond agreement, which is a legally binding contract:

  • The state or local taxing authority requiring the bond is the “obligee”
  • The business owner required to purchase the sales tax bond is the “principal”
  • The company underwriting and issuing the bond is the “surety”

The surety establishes a line of credit for the principal in the required bond amount established by the obligee based on actual or estimated sales volume. The surety will extend that much credit to the principal for the purpose of payment resulting from the principal’s failure to make sales tax payments to the obligee as required.

If a settlement can’t be negotiated, the surety will tap into the principal’s credit line to pay the claim on behalf of the principal. This creates a debt that the principal must repay to the surety, usually as a series of installments over a certain period of time.

The premium for a sales tax bond is a small percentage of the bond amount. The percentage, also known as the premium rate, is determined on a case-by-case basis and reflects the surety’s assessment of the risk of extending credit to the principal. That risk is a function of the likelihood of claims and the willingness and ability of the principal to repay the surety for any claims paid.

Applicants considered creditworthy and financially stable may pay a premium rate in the range of 1% to 3%. Those with poor credit may still be able to get bonded but may pay a higher premium rate.

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Request a quote online or call today to speak with one of our surety bond experts about the sales tax bond you’ll need to obtain or renew your business license.