California Alcohol Tax Bond
Surety Bond Professionals is a family owned and operated bonding agency with over 30 years of experience. With access to a broad range of surety markets, our expert agents are ready to assist with all of your California alcohol tax bond needs.
What Are California Alcohol Tax Bonds?
California mandates bonding of certain businesses in the alcoholic beverage industry as a prerequisite for receiving a license or permit to operate anywhere in the state. The purpose of the bond is to ensure payment of taxes due on the revenue from alcohol sales. Thus, the bond provides financial protection for the state of California.
Who Needs Them?
Businesses engaged in selling, manufacturing, or warehousing alcoholic beverages in California are required by the California Board of Equalization to purchase a surety bond in an amount to be determined by the Board as security to ensure the payment of taxes. The Board (the “obligee” requiring the bond) can file a claim against the bond to recover unpaid taxes, fines, and penalties from the business owner (the “principal” required to purchase the bond). The obligee sets the required bond amount for each principal based on the estimated tax liability.
Failing to maintain an active bond in force at all times can lead to license or permit suspension or revocation.
How Do They Work?
In addition to the obligee and the principal, there is a third party to every surety bond—the bond’s guarantor, known as the “surety.” The surety specifically guarantees the payment of claims by the principal and agrees to extend credit to the principal for that purpose if it becomes necessary. The obligee can file a claim against the bond to collect past due tax payments from the principal. The principal is legally obligated to pay all claims that the surety finds to be valid.
How Are Claims Paid?
The terms of the surety bond agreement legally obligate the principal to pay all valid claims. However, the surety has guaranteed their payment by agreeing to extend credit to the principal if necessary for the purpose of paying claims. In the interest of a swift settlement, the surety typically taps into a line of credit established for the principal when the bond was issued uses it to pay the claim initially, on the principal's behalf.
That payment by the surety creates a debt that the principal now must pay back to the surety. Failing to repay the debt can subject the principal to legal action by the surety to recover the funds.
How Much Do They Cost?
The annual premium for a California alcohol tax bond is a small percentage of the required bond amount, that percentage being the premium rate, which is assigned through underwriting. The underwriting goal is to assess the risk involved in the surety paying claims on behalf of the principal. That risk is measured largely on the basis of the principal’s personal credit score.
The higher the credit score, the less risk there is of the principal not repaying the surety, which deserves a low premium rate. A low credit score, however, signals a higher risk level and results in a higher premium rate.
The average well-qualified principal will pay a premium rate that’s in the range of one to three percent.
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Our surety bond professionals will get you the California alcohol tax bond you need at a competitive rate.