Sales tax bonds are surety bonds that ensure a business will pay local and state taxes that are imposed by the state government. As of January 1, 2020, certain retailers and retailers who are non-compliant with sales tax will be required to obtain a Surety bond no less than $25,000, for a period of two years.
Let’s dive a bit deeper into what an Alabama sales tax bond is, how it works, and how to get one.
What is an Alabama Sales Tax Bond?
Sales tax bonds act as a financial guarantee that a business will fulfill their sales tax obligations. If the business fails to pay their taxes, the governing agency that requires the sales tax bond can file a claim against the bond. If their claim is approved, the surety (aka the company that sells the bond) has to pay the unpaid taxes.
Most states require sales tax bonds although there are some exceptions. Delaware, Montana, New Hampshire, and Oregon don’t enforce a statewide sales tax, therefore there is no need for a sales tax bond. In Alabama if you sell beer, wine and tobacco and you are submitting your initial application you will need to carry this bond for 2 years. The bond can be required if you have been late on your taxes as well.
Whenever a surety bond is issued—including a sales tax bond—three different parties are involved in the bond contract:
How Does a Sales Tax Bond Work?
Now that you know who the key players are when it comes to this type of bond, let’s look at an example of how an Alabama sales tax bond can work. Imagine that you own a clothing boutique in Mobile, Alabama. You don’t pay your sales taxes for two quarters in a row and now you owe $5,000 in sales taxes. The state agency you were supposed to pay the sales taxes to can file a claim against your Alabama sales tax bond and if the surety confirms the taxes were unpaid, they will need to pay the state agency the full $5,000 that is due. The principal will then owe $5,000 to the surety instead of the obligee.
Businesses need to purchase sales tax bonds in addition to their business license. This bond requires that business owners report their sales revenue so the government can properly calculate the correct amount of sales taxes owed. Usually sales taxes are owed on a quarterly basis and if a business fails to pay their taxes the sales tax bond serves as a protection for the government and ensures that they get paid what is owed to them. On top of having to pay the surety back for any owed sales taxes, the business may also be subject to fines and penalties for missing a payment.
If a claim is filed against your business falsely, if you can prove you paid your taxes, the claim will be denied. If you did truly fail to pay your taxes and the claim is approved, then the taxes owed (up to the bonded amount) will be paid to the governing agency by the surety.
In the state of Alabama, a sales tax bond must be $25,000 and cover a two-year bond term. Usually, sales tax bonds cost about 1% to 5% of the bond amount if you have good credit, but may cost 10% or higher for those with bad credit.
How To Get an Alabama Sales Tax Bond
You can obtain a sales tax bond through insurance carriers or companies that specifically deal in surety bonds. Usually, it’s a fairly quick and easy process to obtain a sales tax bond and more often than not you can complete the following process online. To get an Alabama sales tax bond, you will usually take the following steps.
If you need to get your hands on an Alabama sales tax bond, we can help get you settled. All you have to do is fill out our initial application form and you can get a quote in just a few minutes. We have rates starting as low as 1% and issue all types of surety bonds in all 50 states. There’s no credit check required and no obligation!
On or after January 1, 2020, certain retailers conducting business in the State of Alabama, who are applying for or renewing a sales tax license or who are non-compliant, will be required to purchase and maintain a one-time surety bond in the amount of no less than $25,000, for a period of two years.
Surety bonds are required for retailers selling beer, wine and tobacco products who:
• Are submitting an initial application for a sales tax license to sell beer, wine, and tobacco products at retail; or,
• Are renewing an expired or cancelled sales tax license which was issued for retail sales of beer, wine, and tobacco products.
The surety bond requirement for those addressed above can be waived if the applicant and a current license holder, who is complying with the license requirements, are related parties or members of a controlled group (see Code of Alabama 1975, Section 40-23-6(b)(2)).
Surety bonds are required for licensed retailers selling any items who:
• Become non-compliant in the collection and remittance of sales tax in any period occurring on or after January 1, 2020.
The non-compliant retailer shall be notified by the Department of their requirement to purchase and maintain a one-time surety bond. The surety bond shall be in the amount of the actual sales tax liability for the three months preceding the occurrence of non-compliance but not less than $25,000, and for a period of two years. The licensee will have thirty days to file the bond or file a notice of appeal to the Department.
Surety bonds shall be executed by the applicant as principal and by a surety company qualified to do business in the State of Alabama. The instructions for executing a sales tax surety bond as well as the bond form can be accessed on the Department’s website at https://revenue.alabama.gov/sales-use/.