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Tax Payer Bond

If you’re a contractor, you may need a tax payer bond before the state considers your business legal. The name of the surety bond may be different by state - eg. Arizona tax payer bond for contractor - but the details of the bond are always the same. This article outlines the basics.

What is a Tax Payer Bond?

A tax payer bond is a type of financial guarantee surety bond. Tax payer bonds are required by some state governments of contractors. The surety bond provides a form of guarantee that the state taxes due will be paid in a timely manner. States require bonds for two reasons. First, to ensure timely collection of any and all tax revenues. Second, to hold contractors accountable when they fail to pay taxes. Surety bond requirements help states regulate contractors and building projects by making it more difficult and risky to avoid paying tax bills. Knowing that, contractors are much more likely to pay taxes in a timely manner. When they don't, the state still has a way to recoup the losses.

How does a Tax Payer Bond work?

If the state has reason to believe a contractor hasn't paid his tax bill, the state may file a claim against the tax payer surety bond. As long as the claim is valid, it's guaranteed to be paid. It's the bonded party's responsibility to pay, but if they can't or won't, the company that issues the surety bond agrees to settle claims up to the bond amount. When they settle, however, the contractor must pay the surety back the full amount of the claim, plus interest and fees. If the contractor tries to avoid the debt due the surety, the surety may use whatever legal means necessary to collect it.

Who should get a Tax Payer Bond?

There are different scenarios where a tax payer bond may be required. The bonds are sometimes required when a contractor applies for licensing. The surety bond can also be required for specific contracts as well as in cases where the contractor has tax payment delinquency issues. If you have questions about if, when, or why you might need a tax payer bond, get good information directly from Viking Bond Service. And if you do require a surety bond, seek one out soon so that it doesn't inhibit business opportunities.

Who are the parties involved in a Tax Payer Bond?

There are three:

  • Principal - The contractor seeking the surety bond is the principal. A principal must pay to activate and renew the bond. They also must accept financial responsibility for all claims filed against the surety bond.
  • Ogilbee - The state agency with oversight of the principal. An obligee may file a claim seeking damages if they believe a principal hasn't turned over all taxes owed to the state.
  • Surety - The company that issues the bond and pays for claims in the principal's absence. A surety does not accept financial loss though. As the party with financial responsibility, the principal must pay the surety back the full amount of the claim along with accrued interest and fees.

How much does a Tax Payer Bond cost?

The state government agency requiring the surety bond will usually determine the bond amount required. The surety bond amounts may vary depending on the reason the bond is being required. At times, the bond amount will be based on the average monthly tax liability of the contractor for a set period of time or based on the contract amount for contract related taxpayer bonds. Regardless of the amount, a contractor will only pay a small percentage of that figure to obtain the bond. The exact cost of the surety bond depends on the applicant's credit and financial standing. Those with bad credit will likely pay more than someone with a high credit profile and strong financials. Fortunately, in many cases, bad credit doesn't disqualify someone from a surety bond - at least not with the help of Viking Bond Service, a national surety agency with a special program specifically for bad credit bond applicants.

How are claims handled for Tax Payer Bond?

Even though the obligee who files claims is a government agency that's presumably trustworthy, a surety never assumes a claim is valid. They always first confirm the details by conducting an investigation. After verifying the details of the claim, the surety pays the obligee an amount necessary to settle the claim, not exceeding the full bond amount. Then, the surety turns its attention to collecting the amount of the claim from the principal.

How to apply for a Tax Payer Bond?

Taxpayer bonds are typically simple and easy to process. Smaller bond amounts may only require the bond application and a credit check. In some instances, financials will be required. A Viking Bond Service agent will let you know exactly what is needed to get the best quote for your taxpayer bond. Count on us to make the process fast and easy. More importantly, expect us to get you a competitive surety bond quote in as little as 24 hours.

Viking Bond Service - A Better Way to Bond

Important as something like an Arizona tax payer bond for contractor may be, it's hardly your top priority. Don't let bonding become a bigger distraction or disruption than it needs to be. Instead, work with Viking Bond Service. We're happy to answer questions and go into detail. Simply call us at 1-888-278-7389 or fill out the contact form on this page. We're also happy to start shopping for surety bond quotes whenever you want us to. Just fill out this online application to get a no-obligation quote.

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