Many different types of businesses need to secure sales tax bonds. This is because these bonds offer a financial guarantee that the business entity that buys them will pay their anticipated sales taxes to the appropriate government agency in a timely manner. The amount of the bond will be set based on a number of factors, including the business’s projected earnings and owed taxes. The government agency that requires the bond to be obtained can make a claim on the surety at any time to cover unpaid taxes.

Like other kinds of surety bonds, there are three parties involved in the contractual agreement that creates a sales tax bond. Your business is known as the principal, the state or local governing authority that asks for the bond is known as the obligee, and the underwriter of the bond is the surety. The obligee can file a claim on the sales tax bond to recover any unpaid taxes from the principal, and in some cases may also be able to revoke the principal’s business license.

The actual cost of the bond is only a small percentage of the total amount, and the bond premium is determined after the surety reviews the principal’s credit history and other business details. The more reputable the business owner and their record as a taxpayer, the smaller the bond premium will be. The term of the bond will vary by state, and the principal must pay a renewal premium annually to maintain the bond.