What is a fuel tax bond?
Fuel tax bonds (also known as motor fuels tax bonds, fuel distributor bonds, or International Fuel Tax Agreement [IFTA] bonds) are legally binding agreements between three parties: sellers and users of certain types of fuel, the government agency responsible for regulating sales of motor fuel, and a surety company.
The government agency is the Obligee and establishes the obligations that the fuel seller (the Principal) must follow. The surety (also called bonding company) issues the bond guaranteeing the performance of the fuel seller.
Why do you need a fuel tax bond?
Fuel tax bonds are required by state agencies and the Internal Revenue Service (IRS) for all sellers of motor fuel. The bonds are also required for certain users, distributors, suppliers, importers, and exporters of various fuel types.
These parties are required to register with the IRS and must obtain the bond to ensure the payment of all taxes owed to the United States government.
When the surety company issues the bond, they provide the state agency and the IRS a guarantee that they will receive timely payment for the fuel seller’s full tax liability. If the fuel seller fails to pay the appropriate taxes on time, the surety will pay out any damages up to the bond amount. The fuel seller is ultimately liable for the losses and is legally required to reimburse the surety company for any damages paid under the bond.
How much does a fuel tax bond cost?
Fuel tax surety bond costs vary depending on the total bond amount and the premium rate. The total bond amount is based on the principal’s financial capability, tax history, and expected tax liability. The surety company determines your premium rate, which is the percentage of the total bond amount you pay as the premium.
Premium rates for fuel tax bonds typically cost between 1% and 4% of the total bond amount. During the application process, the surety company evaluates your credit score, financial strength, and industry experience. Applicants with good credit generally receive the lowest rates, however, bad credit will not prevent you from securing a fuel tax bond. EZ Surety still offers competitive rates to individuals with low credit scores or other financial issues.
Below are the lowest premiums EZ Surety has issued for fuel tax surety bonds in popular states.
- EZ Surety has issued fuel tax bonds in the State of Oregon for premiums as low as $375
- EZ Surety has issued fuel tax bonds in the State of Vermont for premiums as low as $175