Tobacco Bonds

At Surety Bonds Agent, we offer a full range of surety bonds nationwide through an extended carrier network. Continue below to learn about tobacco 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 TOBACCO BOND QUOTE

What Are Tobacco Bonds?

Both the federal government and individual states require certain businesses in the tobacco industry to purchase tobacco bonds, which serve to:

  • Ensure that the company conducts business in accordance with applicable laws
  • Guarantee payment of taxes due on sales, which is why tobacco bonds are classified as financial guaranty surety bonds.

If a bonded tobacco business fails to remit sales taxes to the taxing authority, the amount due plus any fines or penalties can be recovered by filing a claim against the company’s tobacco bond.

Who Needs Them?

The U.S. Department of the Treasury’s, Alcohol and Tobacco Tax and Trade Bureau (TTB) requires any person who owns a business that manufactures tobacco products or who operates an export warehouse to purchase a tobacco bond. The required amount of the bond (the bond’s “penal sum”) depends on the type of business and is based on the company’s estimated annual sales tax liability.

Not all states mandate a tobacco bond, but many of them do. In the states that require tobacco bonds, the governing jurisdiction typically is the state’s Department of Revenue or its Alcohol Tax and Firearms Agency. A given state’s tobacco bond requirement may apply to all tobacco-related businesses (manufacturers, distributors, wholesalers, retailers, importers, warehousing operations, etc.) or only to certain types of businesses.

Some states require a tobacco bond that covers taxes due on sales of all tobacco products, while others require one bond for cigarette sales and a second bond for all other tobacco products.

As with federal TTB bonds, the penal sum for state tobacco bonds varies according to the specific type of business and its estimated tax liability.

How Do They Work?

Every tobacco bond is a legally binding contract among three parties: the “obligee,” the “principal,” and the “surety.”

  • The obligee is the taxing authority requiring the bond—the TTB for federal tobacco bonds or a state’s ATF or other government entity with jurisdiction over the tobacco industry.
  • The principal is the specific tobacco-related business required to purchase the tobacco bond.
  • The surety is the company that underwrites and issues the tobacco bond.

Failure to remit taxes due on the sale of tobacco products can result in the obligee filing a claim against the principal’s bond and collecting the overdue taxes plus any related fines or penalties. When a claim is received, the surety will investigate to ensure that it’s valid and may try to negotiate a settlement.

Absent a settlement, the surety will pay the claim (up to the bond’s full penal sum) on behalf of the principal. However, the principal is legally responsible for paying all claims and must reimburse the surety.

What Do They Cost?

The annual premium for a federal or state tobacco bond is a small percentage of the bond’s penal sum. The surety sets that percentage, the premium rate, on a case-by-case basis. The underwriters’ primary concern is the risk the surety takes on in paying claims in advance and waiting to be reimbursed. Consquently, the key factors considered are the principal’s personal credit score and financial strength.

A high credit score should qualify the principal for a premium rate between one and five percent of the bond’s penal sum. A principal with lesser credit should still be able to obtain a tobacco bond but will 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 about tobacco 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 TOBACCO BOND QUOTE

What Are Tobacco Bonds?

Both the federal government and individual states require certain businesses in the tobacco industry to purchase tobacco bonds, which serve to:

  • Ensure that the company conducts business in accordance with applicable laws
  • Guarantee payment of taxes due on sales, which is why tobacco bonds are classified as financial guaranty surety bonds.

If a bonded tobacco business fails to remit sales taxes to the taxing authority, the amount due plus any fines or penalties can be recovered by filing a claim against the company’s tobacco bond.

The U.S. Department of the Treasury’s, Alcohol and Tobacco Tax and Trade Bureau (TTB) requires any person who owns a business that manufactures tobacco products or who operates an export warehouse to purchase a tobacco bond. The required amount of the bond (the bond’s “penal sum”) depends on the type of business and is based on the company’s estimated annual sales tax liability.

Not all states mandate a tobacco bond, but many of them do. In the states that require tobacco bonds, the governing jurisdiction typically is the state’s Department of Revenue or its Alcohol Tax and Firearms Agency. A given state’s tobacco bond requirement may apply to all tobacco-related businesses (manufacturers, distributors, wholesalers, retailers, importers, warehousing operations, etc.) or only to certain types of businesses.

Some states require a tobacco bond that covers taxes due on sales of all tobacco products, while others require one bond for cigarette sales and a second bond for all other tobacco products.

As with federal TTB bonds, the penal sum for state tobacco bonds varies according to the specific type of business and its estimated tax liability.

Every tobacco bond is a legally binding contract among three parties: the “obligee,” the “principal,” and the “surety.”

  • The obligee is the taxing authority requiring the bond—the TTB for federal tobacco bonds or a state’s ATF or other government entity with jurisdiction over the tobacco industry.
  • The principal is the specific tobacco-related business required to purchase the tobacco bond.
  • The surety is the company that underwrites and issues the tobacco bond.

Failure to remit taxes due on the sale of tobacco products can result in the obligee filing a claim against the principal’s bond and collecting the overdue taxes plus any related fines or penalties. When a claim is received, the surety will investigate to ensure that it’s valid and may try to negotiate a settlement.

Absent a settlement, the surety will pay the claim (up to the bond’s full penal sum) on behalf of the principal. However, the principal is legally responsible for paying all claims and must reimburse the surety.

The annual premium for a federal or state tobacco bond is a small percentage of the bond’s penal sum. The surety sets that percentage, the premium rate, on a case-by-case basis. The underwriters’ primary concern is the risk the surety takes on in paying claims in advance and waiting to be reimbursed. Consquently, the key factors considered are the principal’s personal credit score and financial strength.

A high credit score should qualify the principal for a premium rate between one and five percent of the bond’s penal sum. A principal with lesser credit should still be able to obtain a tobacco bond but will pay a higher premium rate.

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