A fuel tax bond is an agreement between three entities; the principal (the business obtaining the bond), the obligee ( the government entity or whoever is requiring the bond), and the surety company providing the bond. In this case, the principal can be any business that is centered around motor fuel, and almost every state has the requirement that such businesses must have some variation of a fuel tax bond in order to obtain a license to sell fuel. The fuel tax bond serves as a guarantee that the principal will pay all taxes and fees required by the state and abide by industry regulations. In the case that the business is not able to or doesn’t, a claim can be filed by the obligee. The fuel tax bond also covers financial damages pertaining to customers of the business and the state from malpractice or illegal activity that the seller or distributor has been involved in. Depending on the state, The name of the bond may differ, but they all serve the same primary purpose. Some of the most common examples of names are: Fuel Bond, Motor Fuels Tax Bond, Mileage and fuel tax Bond, Fuel Distributor Bond, Fuel Supplier Bond, or an IFTA Bond (IFTA stands for International fuel tax Agreement).
The cost of a fuel tax bond can also be referred to as the premium. The premium for a fuel tax bond is a fraction of the bond’s total amount, which can vary by state. The premium of a fuel tax bond is calculated based off of the principal’s credit, financial capability, and the surety company providing the bonds. fuel tax Bonds are financial guarantee bonds, which means that they are considered a higher risk - so applications will be evaluated much more carefully than other bonds.
The principal’s credit score has the most impact on the price of the premium. For example, high credit scores will usually result in a price offer between a 1%-3% rate of the total amount, while average credit scores result in about 4%-7.5% of the bond’s amount, and lower credit scores, around the 650 range, may pay closer to 15%. In special circumstances, when the principal has a history of late payments or a string of past-due taxes and fees, liability will be seen as significantly higher than the average applicant, they can expect to see rates ranging from anywhere from 10%-20% of the total amount, if they are approved.
However, the price or premium of a fuel tax bond can never be more than a number equal to the value of the following:
We’re committed to offering our customers the best rates available on the market for their bonds. To do this, we have partnered with over 10 insurance partners, allowing us to find the best price available for each customer. Each surety company will rate each business differently, so even if a business has been declined or quoted a high premium, we can find great, affordable quote from one of our 10 partners.
Some sort of variation of a surety fuel tax bond is required in every state except for Alaska, Iowa, Maine, Maryland, and South Dakota in order to obtain a license to sell motor fuel. However, additional regulations may still apply in these states, so be sure to check your state’s laws and regulations. And, while it primarily applies to those selling motor fuel, it can also apply to businesses that use, distribute, or mix it as well.
There can be different types of fuel tax bonds depending on where you are getting licensed. A fuel tax bond can have a variety of fuel tax titles. The most common are the Motor fuel tax bond, Mileage & fuel tax bond, and Fuel Distributor or Fuel Supplier bond. They all differ in pricing, term activation and duration timing, and depend on the state, type of business, and coverage goals of the principal.
In addition to standard fuel tax bonds, a specific type, the International Fuel Trade Agreement (IFTA) bond, is required in 7 states even if you plan on just driving through them. This is due to the large number of trucking companies being based out of only a handful of states, where truckers will most often fuel up during their departure or arrival - this ensures that even the states in between are able to get funding for road maintenance and construction.
Unlike typical insurance, a Taxable Fuel Bond protects the public and the government that the business deals with, not the principal itself. The fuel tax bond serves as a guarantee that the principal will pay all taxes and fees required by the state and abide by industry regulations.. If the company is suspected to have breached state laws or industry standard agreements, the obligee can file a claim against the principal. If it is deemed valid by the surety company, they will compensate and cover the cost of the damage or financial harm that the business may have caused to them. This applies to situations in which taxes may go unpaid or if the business already has overdue taxes, accrued interest, penalty charges, fees, and other financial obligations that resulted from the principal violating the terms of their licensure agreement.
After the claim has been paid out, the surety company will expect to recoup the claim amount from the customer. This is because the bond was intended to cover the obligee and not the business, so the surety company requires the entity to repay them for the claim amount. If they do not pay back the surety company, it can lead to them having more difficulties getting a bond in the future, or they may pay a much higher premium for the bond, given their claim history.
You can apply for a fuel tax bond online, but be prepared to submit your SSN for a soft credit check. Depending on the standing of you credit history, you may also be asked about business and personal financials for all owners of the business. Since fuel tax bonds are considered high risk, the process usually takes longer for surety companies and underwriters to review the application and assess the risk. Additionally, when the underwriter and customer are responsive, we can take care of the bond faster than emailing information back and forth with long wait times. With that being said, we can work to ensure that you receive your bond as fast as possible, but we recommend preparing to get your bond a few days before it is required for your business.
Once the bond has been granted, it will be in effect and have the ability to be renewed annually as long as the principal plans to stay in business. We’ll reach out around 30-45 days before the bond is set to expire to begin the renewal procedure.
Avoiding claims under the fuel tax bond is relatively easy. Just make sure to not participate in or commit the following:
In general, the best way to avoid a claim on your fuel tax bond is by following the laws and regulations set for your state.