In the state of Texas, businesses involved in the distribution, sale, and storage of motor fuels must adhere to specific regulations, one of which may include securing a Texas Fuel Tax Bond. This bond is a financial guarantee required by the Texas Comptroller of Public Accounts (Comptroller) to ensure that fuel suppliers, distributors, blenders, importers, and exporters comply with tax obligations associated with motor fuels. This guide will cover everything you need to know about Texas Fuel Tax Bonds, including their purpose, who needs them, how to obtain one, and what happens if the bond is violated.
A Texas Fuel Tax Bond is a surety bond that guarantees that a business handling motor fuels will comply with all state tax regulations regarding the handling of motor fuels. If a business fails to pay the required taxes, the bond provides the state with a financial mechanism to recover the unpaid taxes. The bond may be required under Texas Statute 162.212.
The motor fuel business is the principal on the bond. The principal agrees to pay the State of Texas all taxes, including penalties, interest and accrued costs. The state of Texas Comptroller is the Obligee. The obligee is the party receiving the benefit of the fuel tax bond’s guarantee on behalf of the public. The Surety is the third-party bond company providing a financial guarantee for the principal’s payment. In exchange for indemnity of the principal and a payment of bond premium, the surety provides the financial guarantee to the obligee.
Should the principal not pay the motor fuel taxes and other costs to the state, the state can make a claim against the bond to the surety. The surety will investigate and pay the claim if necessary. The surety can then seek reimbursement from the principal under the indemnity agreement. The fuel tax bond benefits the state and the general public by ensuring an easy way to collect tax payments if the motor fuel business does not pay. Because surety bond companies are licensed and regulated, it is generally much easier for the state to collect from the bond company versus trying to collect from the principal.
If a Fuel Tax license holder is required to post a bond, it is required to be in the amount of two times the maximum amount of tax that could accrue on tax-free diesel fuel purchased or acquired during a reporting period.
The minimum amount of the bond is $10,000 for dyed diesel fuel and $30,000 for all other licenses. The maximum amount of the bond is $600,000 in most circumstances. In special circumstances where the comptroller believes there is more risk, bonds totaling more than $600,000 can be required. This is rare in our experience.
The liability on a Texas Fuel Tax Bond does accrue each year. The bond amount must cover an individual calendar year. Therefore, the surety’s liability could be more than a single year’s bond if they wrote the bond for multiple periods.
Texas Fuel Tax Bonds can be obtained online in many cases. If the party has good credit, these bonds can be purchased instantly answering a few questions and completing a credit check. The applicant will need their Texas Taxpayer ID Number. For cases when credit alone does not qualify, financial statements on the business and possibly the owners may be required. Axcess Surety has solutions for Texas fuel tax bonds for licensees in almost all situations.
Texas Fuel Tax Bonds can be purchased online instantly for 1% of the bond amount or less for most applicants. For example, a $30,000 bond can be purchased for $225 a year. The maximum $600,000 bond can be purchased for $4,500 a year. The premium will be due each year that the bond remains in place. Some bond companies provide significant discounts for purchasing multiple years in advance.
Certain fuel suppliers, permissive suppliers, distributors, exporters, importers, blenders and dyed diesel fuel users may need a bond at the discretion of the Comptroller. The Texas codes reads:
A Texas Fuel Tax Bond must be continuous in nature until released by the Comptroller. After four consecutive years of complying with the bond, a licensee may request that the comptroller release the bond. However, the Comptroller is not required to do so.
The fuel tax bond may not be released until it is determined by examination or audit that a tax, penalty, or interest liability does not exist. The cash or securities shall be released within 60 days after the comptroller determines that liability does not exist.
The surety may cancel a Texas Fuel Tax Bond anytime by notifying the Comptroller in writing. The surety will be released from liability the 31st day after the notice of cancellation is received. The motor fuel licensee will need to replace the bond company with a new bond company during that period to avoid having their license suspended. The surety will still be responsible for any claims that occurred while they were writing the bond and during the 30 day notice period.
Texas allows a few alternatives in lieu of posting a fuel tax surety bond. These include an Irrevocable Letter of Credit (ILOC), cash or certificate of deposit (CD). These alternatives must be in the same amount as required by a surety bond. They also require the same duration and release procedures as a bond.
Generally, a fuel tax bond is a better option for most licensees. Cash, CDs and ILOCs tie up resources that can be better used for operations or growth.
Texas Fuel Tax Bonds may be required for some licensees in the state. These bonds can be purchased online instantly by most at Axcess Surety. Contact our surety bond experts today. Motor fuel licensees can also learn more about surety bonds, including many frequently asked questions by visiting our Complete Guide and Learn Pages.
Axcess Surety is the premier provider of surety bonds nationally. We work individuals and businesses across the country to provide the best surety bond programs at the best price.
