Surety Bond Professionals is a family owned and operated bonding agency with over 30 years of experience. In this guide, we’ll walk you through how to get a Michigan liquor license.
With access to a broad range of surety markets, our expert agents are ready to assist with all of your Michigan alcohol tax bond needs.
What Are the Different Types of Michigan Liquor Licenses?
Michigan’s Liquor Control Commission (MLCC) issues liquor licenses in two broad categories: retail and non-retail. Licenses in both categories are further classified according to the specific business activity or type of establishment and the type of alcoholic beverages involved.
For example, a restaurant that will be selling beer, wine, spirits, and mixed drinks for consumption on the premises needs a “Class C” license, while a hotel that will be selling the same alcoholic beverages for on-premises consumption needs a “B-Hotel” license. An importer of wine will need a different type of license than a wine producer, and liquor wholesalers and retailers need different types of licenses as well.
What Are the Steps in the Licensing Process?
As far as Class C licenses go, Michigan is a quota state, which means that the number of licenses for restaurant and bar licenses in that class is based on the population of the municipality. In municipalities that have no available liquor licenses, the only way to obtain one is to buy an existing license from a business owner that no longer wants or needs a Class C liquor license.
When a new license is available, the process involves:
- Submitting a completed application, supporting documents, inspection fee, and license fee to MLCC
- Getting a local government resolution approving the application
- Undergoing an investigation by the appropriate MLCC district office
- Waiting for the application to be approved by MLCC at a scheduled licensing meeting
There is an additional step for non-retail licenses and out-state applicants—purchasing a mandatory liquor license bond that’s more commonly known as an alcohol tax bond.
Why is a Michigan Alcohol Tax Bond Required?
The main purpose of a Michigan alcohol tax bond is to provide a way for the state to collect unpaid taxes from a licensee. But it also serves as a licensee’s guarantee to abide by all relevant state laws and regulations governing the alcoholic beverage industry in Michigan.
Consequently, in addition to filing its own claim for unpaid taxes and/or fees, MLCC (the “obligee” requiring the bond) can file claims on behalf of customers and suppliers who have been harmed financially by the licensee’s unlawful or unethical conduct.
The required bond amount (i.e. the bond’s “penal sum”) is one twelfth of the total liquor taxes paid to the state during the previous year, with a minimum of $1,000 for the first year. This is the maximum amount that will be paid on a single claim against the bond.
How Are Michigan Alcohol Tax Bond Claims Paid?
The surety bond agreement for a Michigan alcohol tax bond is a legally binding contract among three parties, one of which is MLCC, as the bond’s obligee. The other two are the licensee (the “principal”) and the company guaranteeing the bond (the “surety”).
The principal is legally obligated to pay all legitimate claims against the bond, up to the bond’s penal sum. The surety determines whether a claim is valid and then pays it on behalf of the principal. That payment creates a debt owed by the principal to the surety—a debt that must be repaid. Failure to repay it can result in the surety taking legal action against the principal.
How Much Does a Michigan Alcohol Tax Bond Cost?
Michigan alcohol tax bond applications go through an underwriting process that is aimed at minimizing the likelihood that the principal will not repay the surety as required for claims paid on the principal’s behalf. Perhaps the most important factor in approving an application and determining the appropriate premium rate is the principal’s personal credit score.
A high credit score is indicative of a low risk of non-repayment and is rewarded with a low premium rate, potentially as low as one percent. Lesser credit may result in a substantially higher premium rate.
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