What is a Sales Tax Bond? – Part II

sales tax

This is a continuance on our discussion about sales tax bonds.

How Much Do Sales Tax Bonds Cost?
Sales Tax Bond amounts differ from state to state, and from business to business.  Typically, a sales tax bond is calculated as an estimated percentage of monthly sales.  Each business is required to project their monthly sales revenue and the tax collected from that revenue.

For instance, say that a state that has a 7% sales tax requires a Sales Tax Bond that is 3 times the monthly tax obligation.  The retailer estimates that average gross monthly sales are $10,000.  Therefore the Sales Tax Bond requirement would be $2,100 ($10,000 X 7% = $700 X 3 = $2,100).

Who Sells Sales Tax Bonds?
Sales Tax Bonds are sold by insurance companies licensed to sell the product in the state in which it is purchased.  Once a bond has been purchased, the merchant or retailer must post, or prove to the government, that the bond is in place.

If a retailer, or principal, fails to remit the proper sales tax to the taxing authority, the government can make a claim to the surety company up to the penal sum amount of the bond.

Can Any Merchant Be Accepted for a Sales Tax Bond?
Most retailers and merchants can obtain a Sales Tax Bond at a reasonable rate through standard surety bond programs.

However, since a Sales Tax Sales Bond is a type of unsecured commercial surety bond, insurers may have different underwriting standards before accepting a merchant for a bond.  Some merchants may be a higher risk for failing to remit sales tax and can be denied coverage.

There are programs, however, offered by some surety bond insurance companies that offer Sales Tax Bonds to bad credit retailers for a higher price.

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