Sales Tax Bond Claims Guide

A Sales Tax Bond (sometimes referred to as a Sales and Use Tax Bond) is generally required by a state regulator to ensure that licensed businesses will file necessary tax reports on a monthly, quarterly, or annual basis (depending on which state you’re working in), as well as pay all taxes that are owed upon any goods and/or services sold at the operating business.

Consecutively failing to fulfill such terms and conditions of the business license means the Sales Tax Bond, provided by Jet Insurance Company, will likely be used for restitution to cover any interest that has accrued, past-due taxes, penalty charges, and other fees owed to the state.

As a direct surety provider, Jet Insurance Company provides protection to the obligee (entity requiring the bond) through the surety bond. However, Jet also has the duty to make sure no faulty claims fall through the cracks, either. Should a claim be filed against a licensee, Jet does a thorough investigation prior to making a claim payment. It’s best to avoid a bond claim in the first place, so read on to find more Sales Tax Bond claim details.

How Can a Business Owner Avoid Sales Tax Bond Claims?

Typically, a Sales Tax Bond is required of new businesses or business owners that have become delinquent in regards to filing accurate tax reports and/or paying taxes on time and in full. As long as all tax regulations are upheld, there is a change a licensee may be released from the surety bond obligation within a certain amount of time (likely one to five years). Until then, it is important to remember what NOT to do as a licensed business owner.

The following is not a thorough list, but considers the main actions that can lead to a Sales Tax Bond claim:

• Failure to file accurate tax returns/reports to the local governing regulator
• Committing license violations such as acts of negligence, criminal malfeasance, or fraud
• Failure to file monthly, semi-annual, or annual returns/reports on time (e.g. Nevada requires tax returns to be filed by the 23rd of each month)
• Subsequently failing to pay all taxes and any other fees promptly when due (e.g. tax payments in Texas must be paid by the 20th day of the month)

Sales Tax Bond Claim Process

Who Can File a Claim on a Sales Tax Bond?

In most cases, the obligee, aka regulator, is the only entity that may file a claim on the Sales Tax Bond in regards to past due taxes and related fees.

However, some Sales and Use Tax Bonds extend the financial protection of the surety bond to customers as well. For example, the Florida Tax Receipts Bond covers claims from the public in cases where they have been the victim of negligence or fraud. If this occurs, the damaged party would have to pursue civil action against the business owner which could lead to a bond claim—this is a rarity but something to be aware of when it comes to Sales Tax Bonds—so, it’s important to know which regulations apply based on the state’s statutes.

Are There Limits to Claim Filings?

Yes, payment for a justified claim by Jet will never exceed the amount of liability that is covered by a Sales Tax Bond; liability is illustrated by the dollar amount of the surety bond. Sales Tax Bonds generally require a custom limit, so it’s hard to say what the bond amount range would look like. Regardless, it is up to the obligee to determine the standards that the bond limit is based on. 

Claim filings are also limited in regards to when they may be filed upon the surety bond. A claim may only be filed on a Sales Tax Bond during its liability timeframe which includes the active duration of the bond term, as well as the cancellation period of 30 to 90 or so days (whatever is detailed on the bond form).

What Would a Sales Tax Bond Claim Look Like?

Chris owns a book store in Akron, Ohio. Unfortunately for Chris, sales are down on books due to the growing popularity of customers switching to digital copies via Amazon and Audible. Because of this, Chris has been repeatedly late on paying his sales taxes for three months within the last year. This business license violation has resulted in the Ohio Department of Taxation requiring Chris to obtain a Delinquent Sales Tax Bond.

This surety bond obligation will be lifted as long as Chris files his sales tax reports and pays the monthly taxes due on time for the next year.

Complaint

It sounds simple enough, but Chris just can’t seem to follow through on these new terms and conditions of his license, and once again, fails to pay his taxes by the Department’s due date.

Chris is now 30 days late on his monthly tax payment to the Ohio Department of Taxation. He has received notice from the Department to pay what is due promptly, and if he does not, his license is on the line and a bond claim will be pursued.

Investigation

The Ohio Department of Taxation does not receive a timely response from Chris so they go through with filing a claim on his Delinquent Sales Tax Bond. Chris’s surety provider (Jet) receives the claim notice and contacts him immediately to discuss details regarding the claim, as well as to request documentation of the alleged license violation. An investigation into each claim is standard practice and is done to ensure baseless claims are not awarded payouts.

Restitution

Unfortunately for Chris, it is pretty clear via his sales reports and business accounts that he has not paid his taxes in full or on time in the last few months. The Jet team is forced to label the Ohio Department of Taxation’s claim as justified and proceed with the payout. 

Funds from Chris’s Delinquent Sales Tax Bond are used to cover his past-due taxes, the interest that has accrued upon his taxes over the last several months, and the penalty fees that have been charged to his business license.

Indemnification

Alas, Chris’s financial woes do not end here. When Chris purchased the Delinquent Sales Tax Bond from Jet, he agreed that he would reimburse the surety provider if a claim was ever successfully filed upon his bond (all surety companies require reimbursement of claims). Well, this happened, so now Chris is expected to follow through on paying Jet back what he owes. 

If Chris fails to fulfill this legal obligation, he will face difficulties obtaining another surety bond in the future. It’s important to remember that he’ll need some kind of Sales Tax Bond if he wishes to continue operating his book store, or really, any other business in the State of Ohio. 

Every state’s tax and business laws vary in some way, so the Jet team recommends reading through the regulations that apply to business owners in your state. Take a look at the chart below for further details.