A fuel tax bond is a surety bond that guarantees a fuel seller pays all applicable taxes to the state government for fuel-related transactions. The fuel tax bond is often a requirement for operating a fuel-related business, similar to obtaining a business license. Beyond direct-to-consumer fuel retailers, businesses that mix, import, and distribute fuel may also need a bond.
Similar to paying your taxes, you don’t want to be caught operating without this required bond. In this fuel tax bond guide, you’ll learn:
Definition & Example
How It Works
Cost & Requirements
Where to Get One & How to Apply
A fuel tax bond is a specific type of surety bond that ensures businesses that deal in fuel pay all applicable taxes, interests, and penalties to the government. The bond is often used as a financial guarantee to deter tax avoidance by businesses. Surety bonds also protect the general public by ensuring fuel retailers are dealing honestly and running legal operations.
Fuel tax bonds are three-party contracts:
Principal: The fuel business (e.g., supplier importer, exporter, dealer, retailer) that must obtain the bond (you).
Obligee: The government entity that requires you to obtain the fuel tax bond.
Surety: The company that sells you the surety bond and guarantees the obligee that you will pay your fuel taxes.
(Fuel tax bonds sometimes known as fuel bonds, motor fuels tax bonds, mileage and fuel tax bonds, fuel distributor bonds, International Fuel Tax Agreement bonds, fuel supplier bonds.)
Let’s say you own a gas station and you fail to satisfy your fuel taxes for three consecutive quarters. You owe $7,400 in fuel taxes. Your local tax agency files a claim against the fuel tax bond and collects the unpaid taxes through the surety.
The fuel tax bond was a byproduct of the International Fuel Tax Agreement (IFTA), which is an agreement between the U.S. and Canada to simplify how fuel usage is reported. In addition to requiring motor carriers to file quarterly fuel tax reports, businesses must also obtain a bond to ensure that all fuel taxes are satisfied.
The purpose of a fuel tax bond is to ensure taxes are paid to the state and to protect the general public against dishonest business practices. The bond helps to deter tax fraud and evasion, while also discouraging misrepresentation of your business. Similar to the government, your customers can also file a claim against your bond if they’ve been adversely affected by unethical or illegal actions by your business.
Keep in mind that fuel taxes extend beyond just motor vehicles — fuel tax bonds also apply to fuel used for air, marine, and ground transportation. If you supply, import, deal in or mix gasoline, you’ll likely need a fuel tax bond alongside your license.
When purchasing your fuel tax bond, you’ll want to know the following bond characteristics:
Bonding amount: The minimum amount your bond must carry (varies by state) and the highest amount a party can be awarded when filing a claim against your bond.
Premium: The cost of purchasing the fuel tax bond — typically 1% to 5% of the bond amount.
Term: How long the fuel tax bond lasts — typically one year and renewed annually.
When a claim is filed against your bond, the surety will conduct an investigation. Confirming whether you paid your fuel taxes or not is typically a straightforward process.
If you can prove you fulfilled your tax obligations, no further action will be taken against you. If you did not pay your taxes, however, then the surety will pay out the amount owed (up to the bond limit) to the governing agency.
Be warned that you will still owe the amount paid to resolve the claim — it will be a debt that you must repay the surety.
Depending on your state, business owners with good credit can expect to pay anywhere from $100 to $30,000 and up for a fuel tax bond. The premium, or cost, is typically 1% to 5% of the required amount, which can range from $10,000 to $600,000. Business owners with lower credit scores often face higher premiums of 10% and up.
Bond terms will typically last one year. That means you will need to pay another premium each year to renew your bond. Fuel tax bonds are part of the licensing process and you will need to remain bonded for however long your license is active.
Many business owners can obtain a fuel tax bond through an insurance company, which may have a separate department just for selling surety bonds. There are also specialized companies that deal only in surety bonds.
Most surety bonds today are purchased online and business owners can receive them virtually immediately after purchase. Generally, you will need to take the following steps to buy a fuel tax bond:
Submit an application that includes your personal and business information (e.g., business name and address).
Receive a premium quote based on your qualifications.
Purchase and receive your bond (or refuse and shop around).
File your fuel tax bond with the governing agency requiring the bond.
Obtaining a fuel tax bond bond is easy when applying with Worldwide Insurance, Inc. Just fill out our initial application form and get an instant quote in minutes. With rates starting as low as 1%, we issue all types of surety bonds in all 50 states. No credit check required and no obligation.
A fuel tax bond is a guarantee that fuel sellers will pay all applicable fuel taxes to the state government, including any penalties and interest owed. Fuel taxes protect the state against tax fraud and evasion and also protect the general public against dishonest business practices. If a business fails to fulfill its tax obligations, the state can file a claim against the bond to collect the amount owed.
A surety bond for fuel tax can cost $100 to $30,000 and up (this is based on a 1% to 5% premium on bond amounts ranging from $10,000 to $600,000). Generally, business owners with strong credit and business financials will qualify for lower premiums.
The requirement for a fuel tax bond is typically in effect for however long your license is active. Keep in mind that bond terms are typically one year and you would need to pay another premium annually to renew your bond.
Yes, bad credit applicants can still get bonded, but may face higher premiums. Worldwide Insurance, Inc. works with thousands of business owners — even those with low credit — to help them meet their bonding requirements.