A Sales Tax (also Bond of Seller, Continuous Bond of Seller, Sales and Use Tax, Limited and Excise Use Tax) bond is a type of financial guarantee surety bond and is typically required by an individual state or local governmental entity to guarantee payment of any taxes due or that may become due. They are typically required for retail or general sales not including food and beverages.
The bond amount will be set by the Obligee (State, City, Town, etc.) that is requiring the bond. Some States have minimum amounts required, or they may calculate the bond required based on the anticipated taxes due for any stated period. Usually tax bonds are either required for every applicant applying for a permit or based on a disciplinary basis. For example, if the taxpayer pays their taxes on time and per the terms of their agreement with the Obligee, then the bond requirement may be reduced or removed. If the taxpayer is past due or has late payment history, the bond requirement may be increased and/or extended. Other Obligees will require the bond for the life of the permit regardless of payment history.
Most tax payment bonds under $25,000.00 will be approved with just a credit check for the applicant(s). For any bond amounts over $25,000.00, business and/or personal financial statements will likely be required. The rates for this type of bond will start at 1-2% for preferred applicants with strong personal credit and financial statements (if required) but are often rated between 3-5% of the required bond limit. Non-standard rates are also available with collateral options and minimum premiums apply.
Another factor that may affect the cost of a Sales Tax bond is the required term by the State, City, Town, or Village requiring the bond. Many municipalities will require their permits (and bonds) to be issued on a calendar year basis resulting in a 12/31 renewal date or other designated dates per the terms of the local legislature. Since bonds are typically rated on an annual basis (i.e. a $50,000 bond approved at 1% would result in a $500.00 annual premium), an extended term will result in an increased premium (i.e. the $50,000 bond approved with an 18-month term may cost $750.00.) Most Sales Tax bonds will need to be reviewed annually so multiple year terms are generally not available unless specifically required by the Obligee.
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