Have state regulators told you to get an Alcohol tax bond? Are you wondering what this surety bond requirement means for your business and why it’s necessary? Those are the right questions to be asking, because the requirement has big consequences for your business. This blog explains why it’s necessary and walks you through the basics.
What is a Liquor Bond?
Some states call it an alcohol tax bond, others call it a liquor tax bond. By either name, the bond holds a business accountable if it fails to supply the state with tax revenues required of businesses involved in the manufacture, warehouse, distribution, or sale of alcoholic beverages.
The state agency responsible for regulating the alcohol industry may file a claim against the alcohol tax bond for any tax revenues a business doesn’t pay. The surety agency that backs the bond will investigate the claim to confirm that the details are true, then it will settle the claim. Liquor tax bonds provide a guarantee to state agencies that they will receive tax revenues owed to them, whether from the bonded party or from the surety agency that backs the bond.
When the surety agency settles a debt, they are only acting as an intermediary – they aren’t accepting financial liability. That responsibility always rests on the bonded party, which is the business that obtains the alcohol tax bond. Whenever the surety agency settles a claim, the bonded party must pay that debt back with interest and fees added to the final cost.
Why do I need a Liquor Bond?
First and foremost, you need an alcohol tax bond because the state requires it, and it’s illegal to operate without one. In most cases, the state will not issue you a business license without proof of a surety bond, and if the surety bond lapses at any point, the license does as well. Penalties vary for operating without a liquor license, but they range from fines, to permanent loss of license, to jail time in extreme circumstances. Why is an alcohol tax bond necessary? Because there would be serious repercussions without one.
But that doesn’t answer our initial question – why do states require an alcohol tax bond in the first place? Since bonds hold the bonded party financially accountable for misbehavior, they act as a deterrent. People are less likely to do something wrong – in this case fail to pay taxes – if they know they are liable for any damages. In that way, surety bonds help to regulate the alcohol industry and keep bad actors from entering or operating within the industry.
Surety bonds also insulate the state budget from the revenue lost because of unpaid taxes. The claims process guarantees payment. It provides a mechanism for the state to seek and receive compensation to cover the loss of unpaid tax revenues. States feel more confident issuing someone a license because they know the surety bond protects the state (and the public at large) from the risk of unpaid taxes. There’s a reason most states have some form of the alcohol tax bond: it’s a necessary component of good governance.
How do I obtain a Liquor Tax Bond?
There’s no way around the surety bond requirement. Your best bet is to seek out a bond that meets the state’s requirements ASAP. It’s also important to pick the right surety agency to partner with, because some are better than others. Move fast and pick right by working with Viking Bond Service – a surety agency equipped to offer liquor tax bonds in every state where they’re required.
To obtain a bond you will need to complete a standard bond application, supply a copy of the surety bond requirements, submit to a credit check, and possibly turn over a financial statement. Other documentation may also be required. The surety will use this information to evaluate your credit risk (eg. how likely you are to cause claims and take responsibility for those claims) and then quote you a price for the surety bond. Expect the surety bond cost to be a small percentage of the total bond value. You should also expect to pay more if you have bad credit or blemishes on your financial record.
Once you pay the surety bond premium, you receive a document proving you’re bonded according to the state’s requirements. You will need to renew that bond periodically (typically every 12 months) by paying the premium, which can go up or down annually with changes in your credit.
Viking Bond Service – Your Alcohol Tax Bond Partner
Alcohol-based businesses need a surety agency they can depend on for as long as they’re in operation. Surety bonds are a fact of life in this industry. The best way to stay compliant is with the help of the right surety agency. Viking Bond Service strives to be that agency from your first point of contact onwards.
If you have questions about liquor tax bonds, surety bonds, or anything else, our team has answers. Reach us through the contact form on this page or by calling 1-888-278-7389. You can also get the bonding process started right now – complete our online application to get a quote back in 24 hours in most cases.