Virginia Alcoholic Beverage Control 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 Virginia alcoholic beverage control bond needs.
What Are Virginia Alcoholic Beverage Control Bonds?
Virginia Alcoholic Beverage Control (ABC) bonds help ensure that certain businesses selling beer or wine coolers to licensed retailers pay their excise tax liability to the Virginia Alcoholic Beverage and Control Board. The state can collect unpaid taxes by filing a claim against a company’s bond, if necessary.
Who Needs Them?
Purchasing a surety bond is a prerequisite for manufacturers, bottlers, or wholesalers seeking a license to sell beer or wine coolers to licensed retailers in the Commonwealth of Virginia. The Alcoholic Beverage Control Board (the “obligee” requiring the bond) determines the required amount for each bond based on the tax liability of the manufacturer, bottler, or wholesaler (the “principal” purchasing the bond), with a minimum bond amount of $1,000 and a maximum of $100,000 depending on the applicant’s volume of business. A similar bond is required from each applicant for a bonded warehouse permit.
There must be an active bond in force at all times to avoid license or permit suspension or revocation.
How Do They Work?
There are three parties to every Virginia ABC bond: the obligee, the principal, and a third party known as the “surety.” This is the bond’s guarantor, the party guaranteeing the payment of claims. However, the surety bond agreement legally obligates the principal to pay all valid claims. The surety guarantees to extend credit to the principal, if necessary, specifically to use in paying claims.
How Are Claims Paid?
Upon receipt of a claim from the obligee for unpaid excise taxes, the surety will investigate the claim to make sure it’s legitimate. If it is, the principal must pay it. However, to expedite the payment to the claimant, the surety typically will issue payment initially and then be repaid by the principal for the resulting debt. As is the case with any other extension of credit, if the principal does not repay the surety, the surety can initiate legal action to recover the funds.
How Much Do They Cost?
The annual premium for a Virginia ABC bond is calculated by multiplying two factors—the required bond amount set by the obligee and the premium rate assigned to the principal by the surety through underwriting. The primary underwriting concern is the risk of the principal not repaying the surety for claims paid on behalf of the principal.
The most commonly used measure of risk is the creditworthiness of the principal. A principal with a high credit score presents little risk to the surety and is rewarded with a low premium rate. However, a low credit score is a red flag for risk, and the premium rate 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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