Liquor License Bond
You will be required to purchase a surety bond for a liquor (or distilled spirits) license when you start up a business that sells liquor to the public. This is considered a prerequisite for the sale of liquor in all states of the US, and it is a kind of a tax bond that guarantees payment to the proper authorities of all taxes, which are levied on transactions involving liquor.
Any business attempting to defraud authorities of those tax amounts, or any business person who is unable to pay the appropriate taxes, would then have the proper tax amounts supplied to the relevant authority when a claim is made against this bond.
How do liquor license bonds work?
A liquor license bond is like all other surety bonds in that it consists of an agreement between three parties, the principal, the surety company, and the obligee. The principal is the business person purchasing the bond, the obligee would be the state or federal agency collecting taxes on the liquor sales, and the surety company is generally an insurance company that sells the bond to the principal.
There is a major difference between a liquor bond and most other sureties, in that a typical bond guarantees some kind of performance by the principal, whereas a liquor bond guarantees financial payment of taxes are collected on liquor sales.
Many surety companies avoid selling these bonds because financial guarantees are riskier than performance guarantees, although some security companies make up for this higher risk by charging more for liquor bonds. Whenever a business person fails to collect or submit the proper tax amounts on liquor sales, or if fraudulent records are submitted to the state agency, a claim can be made against the liquor bond.
If the claim is found to be valid, the surety company will make good on the amount of the claim and reimburse the state agency. Following this action, the surety company would then try to recover lost monetary assets by obtaining them from the principal. Any principal wanting to stay in business would then be obligated to pay the amount of the claim to the surety company, so the surety could be made whole again. Any claim made against the liquor bond could be very damaging to a business person’s reputation, as well as their financial situation, so having the bond in place is a great incentive to properly collect taxes and submit them to the state agency as required.
How much does a liquor bond cost?
The required bond amount is always determined by the relevant state agency, although for the most part, these amounts will vary between $2,500 and $7,500. The owner of the liquor business will be required to pay a percentage of this amount as a premium when purchasing the bond, and this percentage will generally vary between 1 percent and 5 percent. For example, a $7,500 liquor bond with a 3 percent premium cost would end up requiring the owner of a liquor business to make a payment of $225 to secure the liquor bond.
There is nothing the business owner can do to reduce the bond amount required by the state agency. However, the premium percentage can be influenced significantly by having a good credit score. The reason for this is that businesses with very good credit are considered to be less risky than those with a poor credit score, as a good credit score is an indication of good business practices.
You can also make a case to the relevant state agency by demonstrating strong proof of liquidity and having several significant business assets. This will also demonstrate that you are much likelier to submit your liquor taxes appropriately and on time, which will, therefore, lower the cost of your bond amount.
Those businesses having a poor credit history may still be able to obtain a bond, but it could be at a much higher premium percentage than it would be for a company with good credit history. It’s even possible for a business that has undergone bankruptcies or civil judgments to obtain a bond, although the cost will almost certainly be higher, and it will probably be more difficult to obtain the bond.
How do I get a liquor license bond?
To obtain a surety bond for a liquor license, it will be necessary to go online and find a surety company that issues liquor bonds for your state. NFP is authorized to sell bonds in all 50 states so we are an excellent choice. We are also the largest and most trusted surety company in the country.
Once you have applied for your liquor bond, and it has been approved by the bonding surety, you will have to pay the imposed premium amount, and return a signed copy of the indemnity agreement to the bonding surety. When the bonding company receives your signed indemnity agreement, the bond will be issued to you, and your coverage will begin. Call us at 800.863.3210 to get the ball rolling on your liquor or distilled spirits bond.