An alcohol bond protects the state and consumers from any unlawful or unethical practices and actions of licensed liquor businesses. These bonds also ensure the payment of taxes on alcohol sales. Learn more below, or contact our experienced surety agents for assistance with any questions you may have.
What Are Alcohol Bonds?
An alcohol bond is a bit of a crossover between a license bond and a financial guarantee bond. These bonds are a prerequisite for obtaining a liquor license, but they also guarantee payment of taxes or fees owed to the state. Alcohol bonds are also known as the following: liquor license bonds, alcohol tax bonds, liquor tax bonds, alcohol ordinance tax bonds, beverage tax bond, brewer’s bonds, distilled spirits license bonds, malt beverage license bonds, and wine bonds.
Whatever the specific type of alcoholic beverage or the nature of a given business, the terms of the bond require the business to operate in compliance with the laws and regulations governing the state’s alcohol industry. The bond protects the state and consumers from the unlawful or unethical practices and actions of licensed liquor businesses and ensure the payment of taxes on alcohol sales.
Who Needs Them?
Every state imposes different bond requirements on businesses involved in the sale of alcohol. Depending on the state, companies involved in the retail sale of alcoholic beverages may not be the only parties required to purchase these bonds. Manufacturers (such as wineries, breweries, and distilleries), warehouses, wholesalers, retail liquor stores, companies that transport alcohol, and restaurants that serve alcoholic beverages may all need to purchase a bond as part of the licensing process.
Typically, these bonds must be purchased at the time of licensing and be renewed annually thereafter.
How Do They Work?
Every alcohol bond involves three different parties:
- The state entity that requires the bond and benefits from having it in place (the obligee)
- The business purchasing the bond in order to obtain a license to operate in the state (the principal)
- The underwriter that issues the bond (the surety)
If a bonded business violates the terms of the bond—for example by falsifying sales records or failing to pay taxes on prior sales—the obligee can file a claim against the bond. If the surety determines that a claim is valid, the surety will pay it up front, then collect a reimbursement from the principal.
What Do They Cost?
The cost of an alcohol bond depends on the required penal amount of the bond, which is set by the obligee. This varies by state. The final cost to the principal, however, is only a fraction of the total amount, which is known as the premium rate. Applicants with good credit will generally pay between 1-5% of the required bond amount.
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