Maryland Tobacco Tax Bonds
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 Maryland tobacco tax bond needs.
What Are Maryland Tobacco Tax Bonds?
Maryland tobacco tax bonds help ensure that businesses in the tobacco industry report their income from cigarette and tobacco product sales promptly and accurately and pay the taxes due to the comptroller's office. If they fail to do so, the state can collect the money owed by filing a claim against the company’s tobacco tax bond.
Who Needs Them?
In the state of Maryland, cigarette manufacturers and wholesalers must purchase a Maryland cigarette tax bond as a prerequisite for licensing. The Maryland comptroller is the obligee requiring the bond. There is a similar requirement for companies seeking licensing to manufacture and wholesale other tobacco products. That bond is referred to as an OTP bond, but the obligee is the same, the Maryland comptroller.
The required amount of an OTP bond is $5,000. But the required amount for a Maryland cigarette bond is determined on a case-by-case basis by the bond’s obligee.
There must be an active bond in place at all times to avoid license suspension or revocation.
How Do They Work?
There are three parties to a Maryland tobacco tax bond: the obligee, the business owner applying for a license (the bond’s principal), and the bond’s guarantor, known as the surety. When the surety first receives a claim against a Maryland tobacco tax bond, there is an immediate investigation to determine its validity. If the surety finds the claim to be legitimate, it must be paid.
How Are Claims Paid?
The terms of the surety bond agreement legally obligate the principal to pay all valid claims, and the surety has agreed to lend money to the principal for that purpose. To ensure a swift resolution, the surety will pay a valid claim on behalf of the principal and then be repaid by the principal for the resulting debt. Not being repaid for claims paid on the principal’s behalf gives the surety the right to pursue the matter in court to recover the funds from the principal.
How Much Do They Cost?
Maryland tobacco tax bonds, whether cigarette bonds or OTP bonds, are sold for an annual premium that is a small percentage of the bond amount required by the obligee. That percentage is the premium rate, which is determined through underwriting. The underwriters’ primary concern is the risk of the principal not repaying the surety for claims paid on behalf of the principal.
The best assurance of a low risk to the surety is a strong credit history, so the underwriters lean heavily on the principal’s personal credit score as a measure of risk. A high credit score is a sign of low risk, so the premium rate will be low as well. A lower credit score means the risk to the surety is higher, so the premium rate also will be higher.
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 Maryland tobacco tax bond you need at a competitive rate.