Texas Sales Tax Bonds Explained
Texas sales tax bonds are a large category of bonds, which retailers and other businesses are required to obtain as a prerequisite to getting a license or a permit in the state. Also known as a continuous bond of seller, this surety bond acts as a guarantee to the Texas Comptroller of Public Accounts that you will pay sales tax on all items sold– and do so within the required timeframe.
Similarly to other sales tax bonds, the continuous bond of seller can serve as the foundation for a claim against any retailer who violates the language of the bond agreement. Each bond is underwritten by a bonding company, which backs the agreement by the holder of the bond and the state.
Want to learn more about the cost of sales tax bonds and what specific situations require them? Read on for more information below, or call us at (877) 514-5146.
Frequently Asked Questions
Who needs a Texas sales tax bond?
A number of different businesses are required to post a sales tax bond in order to lawfully operate in Texas. According to the Texas Administrative Code, “еach person who applies for a tax permit or who becomes delinquent in the payment of any taxes, penalties, or interest” is required to post a surety bond.
This can mean merchants, auctioneers, hotels, people who sell property, etc. A specific type of sales tax bond is also required from the holders of the following permits: mixed beverage, private club, caterer, distiller and rectifier. In fact, they need to furnish two types of bonds: a Mixed Beverage Gross Receipts Tax Bond and a Mixed Beverage Sales Tax Bond.
How much does a Texas sales tax bond cost?
Each surety bond has a total bond value which refers to the maximum compensation it can offer to claimants. This amount is determined by the Comptroller of Public Accounts, and is based on your revenue for the past calendar year. The maximum bond amount is $100,000 or 4 times the average monthly liability of the retailer for the last 12 months. Under special circumstances– such as when a retailer is delinquent– the Comptroller may require additional surety bonds to be posted.
Once you know the total bond amount of your sales tax bond, you can calculate your premium. Your premium is a certain percentage of the total bond amount, and the actual amount you will have to pay annually. Surety bond underwriters determine what your premium will be based on information about you and your business, such as credit report and financial strength. Bonding companies will mostly calculate your premium on the basis of your personal credit score. Applicants with good credit usually pay between 1% and 5% per year.
Can I get a Texas sales tax bond if I have bad credit?
Sales tax bonds in Texas are considered high-risk, meaning that surety bonds companies exercise more scrutiny when underwriting them. If an applicant has bad credit or other red flags in their credit report, they ask for higher premiums, because there’s a higher risk involved for them.
This is why bad-credit applicants can expect premiums around 15%-17% per year. Thanks to our expertise in underwriting these bonds, you will not need to post collateral. Learn more about applying for surety bonds with bad credit on our dedicated page.
What is the application process like?
You can submit our online application in just a few minutes, and you will instantly receive a free bond quote. We’ll also be in touch with you to specify what documentation we need to finalize your application. Bond underwriters use different evaluation criteria, so we cannot provide an exhaustive checklist of what you are going to need. As industry standard, though, you will need to sign an indemnity agreement, and the bonding company will almost certainly want to look at your finances.
After you’ve finalized your application and submitted payment, we’ll do our best to get your bond issued in 1-2 business days. We’ll email you a digital copy of the bond, and send you the original by mail.
What happens if there is a claim against my sales tax bond?
Failure to declare your revenue, or pay sales tax to the state, can get you in trouble and result in a bond claim. In a situation like this, the surety bonds company is initially responsible for compensating the claimant, but the ultimate financial responsibility lies with you.
If you believe that you have been accused wrongfully, you can try to fight the claim in court, and the surety can even offer to help if you have sufficient proof to present. In general, however, it is best to avoid situations that may result in a claim, as claims can be detrimental to your business in a number of ways.
How do I renew my Texas sales tax bond?
Sales tax bonds in Texas expire on December 31st of each year, which means they need to be renewed beforehand. The renewal process isn’t complicated, but it’s important not to postpone it until the very last minute. As the end of the year approaches, bonding companies might be processing a lot of applications, causing delays.
To be on the safe side, submit your application at least 30 days ahead of the deadline. If you have issued your bond with Lance Surety Bonds, you can rest assured we will send you a renewal reminder much earlier.