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Taxable Fuel Bond

What is a taxable fuel bond?

A taxable fuel bond is required by all fuel owners for as long as their license is active. The bond presents a promise that all fuel sellers operating within a state will pay all appropriate taxes, penalties and interest owed to the state government. As is the case of all surety bonds, the taxable fuel bond is an agreement among three entities:

  • The principal is the registrant being required to purchase the bond.
  • The obligee is the Chief, Excise Tax Program requiring the bond.
  • The surety is the underwriting company issuing and backing the bond.

Taxable fuel bonds protect the state and public in the event a fuel seller does not comply with industry regulations. If the principal, in this case the fuel seller, does not comply with state regulations, the surety must compensate the obligee for any damages done. From there, the principal is required to reimburse the surety in full.

The bond is referred to by different names depending on the state a fuel seller is getting their license in. A taxable fuel bond may be called a fuel bond, motor fuels tax bond, mileage and fuel tax bond, fuel distributor bond, fuel supplier bond or an IFTA (International Fuel Tax Agreement) bond.

Why do I need a taxable fuel bond?

All sellers of fuel, and in some cases suppliers, importers, exporters and distributors, are required to post a taxable fuel bond. Registrants must obtain the bond in order to guarantee the payment of all taxes owed to the United States government by a date determined in advance (26 U.S. Code 6151). The bond ensures the fuel company is in compliance with the guidelines established by the Internal Revenue Service (IRS).

How much does a fuel bond cost?

Although the IRS establishes the guidelines for fuel bonds, it does not preset the amount of the bonds. Instead, the cost of a fuel bond is dependent upon an applicant’s financial capability, tax history and expected liability (sections 4041[a][1] and 4081 of the Federal Tax Regulations).

The cost of this bond will never be more than an amount equal to the following:

  • Expected tax liability for a representative 6-month period
  • Expected tax liability of someone other than the terminal operator during a representative 1-month period (specific to terminal operators)
  • The gasohol bond amount (specific to gasohol blenders)

This bond is subject to underwriting so the surety company can determine the amount of risk present by writing each bond. Applicants will need to submit a credit check and may also be asked for additional information, such as business and personal financials for all owners of the business.

How do I apply for my taxable fuel bond?

SuretyBonds.com strives to provide every client with a fast, easy and accurate surety bond application process.

  • Step 1: Apply online, and let our surety experts do all the work for you.
  • Step 2: Pay for your bond. We offer quick, easy and convenient payment options.
  • Step 3: Receive your bond. We will instantly send you a digital copy of your bond via email and send your original in the mail. The original bond must then be filed with the obligee.

If you are ready to roll, fill out our online bond request form to receive a free, no-obligation quote! Still have questions? Talk to a surety specialist today by calling 1 (800) 308-4358.

What is the fine print of this bond?

Taxable fuel bonds are required by a federal agency. This means the surety company writing the bond must be on the Department of Treasury Circular 570 list of approved companies.

Once the bond has been issued, it will remain in full effect and renewed annually for as long as the registrant wishes to continue business. The surety company may cancel the bond at any time during the term my providing a written notice at least 60 days prior to the proposed cancellation date to the Chief, Excise Tax Program of the Internal Revenue Service.

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Additional Resources

Application for Registration (Form 637)

Excise Tax Information

26 CFR 48.4101-1 - Taxable fuel; registration

26 CFR 48.4101-1 - Taxable fuel; definitions

26 U.S. Code 6151 - Time and place for paying tax shown on returns

Department of Treasury Circular 570 list of approved surety companies

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