- Also known as liquor bond, liquor tax bond and alcohol tax bond
- Required by the state or federal government
- Guarantees payment of taxes on liquor sales
- Bond form and amount vary by location and license type
When you start your liquor business, you’ll be required to obtain an alcohol tax bond by the state or federal government. It is a prerequisite for participating in the sale, manufacturing and warehousing of alcohol. So what exactly is the alcohol bond?
The alcohol bond, also known as a liquor bond, is a type of tax bond that guarantees the payment of taxes on all transactions with liquor. Thus it protects the authority requiring it, in case you are unable to pay collected taxes or you keep fraudulent records.
In practical terms, it is a three-party contract between your liquor business as the principal, the state or federal government as the obligee, and the surety as the underwriter of the bond.
Unlike other surety bonds, the alcohol tax bond acts as a financial guarantee, which is a type of bond often avoided by sureties. The reason is that financial guarantee bonds involve a higher level of risk, since they entail financial reimbursement rather than full performance of services or abiding by certain laws and regulations. However, in the case of a liquor bond, the state is the obligee and taxes are usually collected and stored separately, which reduces the risk of fraud.
In case you still transgress the rules of tax collection on liquor, a claim can be made on your bond. If a discrepancy is proven, the surety will cover the expenses up to the penal sum of the bond. Afterwards you will need to fully reimburse the underwriter, however. It makes sense to collect and pay your liquor taxes diligently, as bond claims can be of great financial and reputational harm to your business.
The cost of your alcohol tax bond will largely depend on the state or government authority requiring the guarantee. The bonding amounts may be somewhere between $2,500 and $7,500, but in some cases they may differ, as they are set by the relevant obligee.
As with other types of bonding, you’ll have to pay only a percentage of the required bonding amount. Thus, if you qualify for the standard market, you’re likely to pay a premium between 1% and 5%.
You can’t control the required bonding amount, but there are ways to lower the percentage you’ll have to pay from it. One of the most important factors that sureties consider when they examine your application is your credit score. That’s why it’s a good idea to try to improve your financial profile. Showing proof of your liquidity and assets is another way to present your business in the best light and get a lower bond premium.
It’s also important to carefully choose your surety underwriter. Bryant Surety Bonds works with multiple A-rated, T-listed surety companies, which allows us to shop around for the best bonding rate for your specific situation.
To get an estimate of your bond cost, you can use our surety bond cost calculator in the right sidebar or consult our surety bond cost page to see how the bond premium is calculated.
If you have a lower credit score, tax liens, bankruptcies or civil judgments, you might have a harder time to get your liquor bond. Still, there are options to get bonded.
Our bad credit surety bond program is a really good one. We strive to give you the opportunity to get your alcohol tax bond and stay in business even if your financial situation is not so perfect. Getting bonded with bad credit means you’ll have to pay a bit more for your bond premium - in the range of 5%-17%. This is needed to compensate for the higher risk involved in the underwriting. However, our bonding experts will examine your specific situation and will offer you the best solution for your case.
It’s easy to start your bonding process today. You can apply online to get a free, no-obligation quote in minutes. If you need more information, don’t hesitate to call us at (866)-450-3412. You can get help and receive answers by our bonding experts, so that getting bonded involves no hassle for you.
Alcohol Tax (Retailers)