If you’re a business owner that sells goods or services, you likely need to be bonded to demonstrate your financial responsibility to pay sales tax. As a result, it’s important to know how claims are handled for this type of surety bond.

Sales tax bonds (also known as tax or revenue bonds) guarantee that a business will pay the appropriate state and local taxes on time and in full. They also guarantee that a business will report its revenue accurately in accordance with the applicable regulations. Failure to meet these obligations can lead to a claim against the bond and may require you to reimburse the surety for up to the full amount of the claim.

A sales tax bond is an unsecured commercial surety bond that involves three parties. There is the obligee — the local and state government agency that requires the bond — the principal, or you as the business owner, and the surety, or the insurance company that underwrites and backs the bond.

The amount of the sales tax bond is determined by the obligee, and it’s based on standards set at the state level. The bond cost, or premium, is an annual fee that is a percentage of the total bond amount. For example, a retailer with good credit can expect to pay about 1% to 3% of the required bond amount, while those with bad credit may need to pay a higher premium.