What is a Fuel Tax Bond?

A fuel tax bond serves as a financial guarantee, ensuring that fuel sellers or manufacturers fulfill their obligation to pay taxes and fees to the state government. This type of bond is not limited to sellers alone; it may also be mandatory for fuel suppliers, importers, exporters, distributors, blenders, convenience stores, and other entities dealing with various fuel types.

Fuel tax bonds come in numerous types. Varying state to state, you may see these bonds referenced differently with each type having specific requirements. Common types of fuel tax bonds include motor vehicle fuel tax bond, mileage & fuel tax bond, motor fuel distributor bond, motor fuel supplier bond, and IFTA (International Fuel Tax Agreement) bond. These bonds cater to specific aspects of fuel-related businesses.

Guaranteeing Tax Compliance

The primary purpose of a fuel tax bond is to guarantee that the principal – the business or individual obtaining the bond – will fulfill all tax obligations, including penalties, interest, and associated costs stipulated by state statutes. These statutes outline the circumstances under which a fuel tax bond becomes necessary and specify its duration.

When is a Fuel Tax Bond Necessary?

State requirements vary regarding the duration of the bond's necessity. Some states mandate it for a specific number of years, while others stipulate that the bond must be maintained throughout the entire duration of the license holder's business operations. Understanding the specific regulations outlined in the state statute is crucial for compliance.

Adverse Selection and Late Payments

In certain situations, a fuel tax bond may be necessitated due to late tax payments, resulting in what is known as adverse selection against the surety. In this case, Merchants would not be a market for the bond.

How Does Merchants Underwrite These Bonds?

Underwriting for fuel tax bonds varies based on the bond amount and bond form specific language. For smaller bond amounts, underwriting may only consist of a clean personal credit report. Larger amounts will require business and personal financial statements.

How do I get a Surety Bond?

Surety bonds are issued by Merchants Bonding Company (Mutual) through insurance agents. Contact your local insurance agent or use our Find an Agent tool. They will guide you through the process, informing you of what documents and information are needed by the surety (Merchants Bonding Company (Mutual)) to underwrite your bond.

What is a Surety Bond?

A surety bond is a three-party agreement that ensures the fulfillment of a commitment or contract. For instance, the surety (Merchants Bonding Company (Mutual)) may provide a surety bond to a construction company (the principal) which is required by the state (the obligee), ensuring the construction company will perform the duties as outlined in the contract. In bonding the construction company, Merchants assumes the risk should the company default or not fulfill their contract. A surety bond is different from traditional insurance in that the principal is obligated to pay back the surety company on any claims paid out.

All information provided is subject to change.