Sales Tax Bonds

Surety Bond Professionals is a family-owned and operated bonding company with over 30 years of experience. With access to a broad range of surety markets, our expert agents are ready to assist you with sales tax bonds.

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What Are They?

Most states requires businesses that sell goods or services subject to sales tax to remit taxes collected from customers to the state on a regular schedule, typically monthly or quarterly. State and local governments that levy a sales tax may require such businesses to purchase a surety bond as part of the process of obtaining a business license.

A sales tax bond is a business owner’s personal guarantee to report sales revenue and remit the applicable sales taxes on schedule. A valid sales tax bond must be in place at all times to avoid revocation of the company’s business license.

Who Needs One?

Every state and municipality decides whether to charge sales tax and on what goods and services. In jurisdictions that impose a sales tax, not only retailers but other businesses may be subject to it. You’ll be told when you apply for a business license whether you are required to collect sales tax from customers and purchase a sales tax surety bond.

In addition to general sales tax bonds, there are also specialized surety bonds for businesses that sell alcohol, tobacco, and gasoline. They all serve the same purpose and work the same way as general sales tax bonds.

How Do They Work?

Like all surety bonds, sales tax bonds establish a legally binding contract among three parties:

  • The state or local government requiring the bond is known as the “obligee.”
  • The business owner required to purchase the sales tax bond is the “principal.”
  • The company that underwrites and issues the bond is the “surety.”

Each party has different roles and responsibilities:

  • The obligee establishes the required bond amount (also known as the bond’s penal amount) and the contract terms the principal must abide by to avoid claims being filed against the bond.
  • The principal must report business revenue and remit sales tax payments on time and otherwise comply with the terms of the sales tax bond. The principal bears full legal responsibility for paying claims incurred by violating any of those terms.
  • The surety determines how much the principal will pay for the bond and will investigate all claims to make sure they are valid.

When a claim has been filed and found to be valid, most often, the surety will pay it on behalf of the principal. This ensures prompt payment while giving the principal a little time to gather the necessary funds. However, the surety bond agreement indemnifies the surety, and the principal is legally obligated to reimburse the surety for claims paid in advance on the principal’s behalf.

What Do They Cost?

The annual premium for a sales tax surety bond is calculated by multiplying the bond’s penal amount by the premium rate set for the principal by the surety. The primary factor the surety considers in setting the premium rate is the principal’s personal credit score. Those with great credit typically pay a premium rate in the range of 1% to 3%, but people with poor credit could pay a higher premium rate.

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