Governments must be careful about who they do business with. That is why states and municipalities require certain vendors to carry sales tax bonds. For example, the most common types of a sales tax bond in Arizona are cigarette, fuel, and alcohol tax bonds. However, Arizona law requires bonds of other businesses, as well.
The Importance of Sales Tax
Taxes fund many state services including public schools, highway construction, and public safety. That is why officials want merchants to have tax bonds. If the merchant fails to pay taxes as required, the surety pays the taxes. Incidentally, it is illegal to collect sales tax and fail to turn it over to the state.
Can Anyone Get a Bond?
Some merchants may not be able to obtain a tax bond in Arizona. Indeed, the merchant must have a good credit score. However, many companies sell high-risk bonds that are more expensive.
How Much Does a Bond Cost?
Individual businesses pay a certain amount for bonds. For instance, merchants who sell cigarettes pay the greater of $500 or four times the monthly tax liability. The government bases tax liability on the average of tax paid for the last six months.
Bonds for alcohol merchants are very expensive because there is a greater risk of losses. The premiums for these bonds are paid annually and are based on a percentage of the bond amount. Those with good credit pay between one to three percent of the bond amount. On the other hand, bad credit drives the premium up as high as fifteen percent.
The Arizona Department of Transportation requires merchants to have fuel tax bonds. The amount of the bond also depends on the estimated tax liability. The bond requirement also applies to fuel distributions and processors.
Failure to Pay Can Be Disastrous
Merchants who fail to pay must set up a claim with the surety. Further, there are many ramifications. Merchants may be denied bonds in the future, and any approved bond premium will be very high. In addition, merchants must pay penalties and interest on the monies owed.
If you want to apply for a bond, contact Southwest Bond Services. Get your business going today.