Here is a fact most new business owners discover the hard way: the government does not explain the difference between a sales tax bond and a sales and use tax bond when they hand you the requirement. They just hand you the requirement. If you are staring at paperwork asking for a sales and use tax bond and wondering whether that is the same thing you have been calling a sales tax bond, whether you really need one, and what it is going to cost — this guide answers every one of those questions clearly and completely.
Sales Tax and Use Tax Are Not the Same Thing — and Neither Is This Bond
Before anything else, it helps to know what the two taxes actually are, because the bond covers both.
Sales tax is collected by the seller at the point of sale. When a customer buys something taxable from your store, you collect the tax and remit it to the government. Use tax is different. It applies when someone purchases goods from an out-of-state vendor and no sales tax was collected at the time — and then uses, stores, or consumes those goods within their home state. In most states, both taxes carry the same rate and are reported on the same return.
A sales and use tax bond covers both. It guarantees that whether you owe sales tax on what you sell or use tax on what you purchase and bring into your state, those obligations will be met. That is why the full name matters — and why you will see it listed on bonding paperwork as a sales and use tax bond rather than simply a sales tax bond, even though most people use the terms interchangeably.
One more important distinction worth knowing upfront: this is a state bond, not a federal bond. The requirements, amounts, and enforcement all flow from state and local tax authorities — not a federal agency.
What Is a Sales and Use Tax Bond?
A sales and use tax bond is a type of financial guarantee surety bond required by state or local legislation. It is a legally binding three-party contract that guarantees a business will collect, accurately report, and remit all applicable sales and use taxes to the appropriate government authority on time.
| Party | Role in the Bond |
|---|---|
| Principal | The business owner who purchases the bond and bears final financial responsibility |
| Obligee | The state or local government tax authority that requires and benefits from the bond |
| Surety | The bond company that issues the bond and guarantees payment if the principal defaults |
The bond does not pay your taxes. It guarantees the government that your taxes will be paid. If you fail to remit, the obligee files a claim, the surety pays up to the full bond amount, and then the surety pursues you to recover every dollar. You are always the financially responsible party. The surety absorbs the risk on paper — never in practice.
Critically, a claims history does not just cost you money in the short term. A paid claim against your bond can make it significantly harder to renew your bond at the end of the term. Without a valid bond, your business license is at risk of revocation. The cascade — unpaid taxes → bond claim → renewal denial → license revocation — is a reality that too few businesses anticipate.
Who Needs a Sales and Use Tax Bond?
Requirements are set by each state and locality. In some states, every new retail sales tax license applicant must file a bond when requested by the Department of Revenue. In others, like Missouri, the bond is only required when the Department specifically requests it — it is not an automatic requirement for all new businesses.
Common triggers for existing permit holders include repeated late filings, recurring returned-check payments, or prior collection problems. Iowa, for example, applies very specific delinquency thresholds before requiring a bond from existing permit holders:
- Quarterly filers with two or more delinquencies in a 24-month period
- Monthly filers with four or more delinquencies in a 24-month period
- Semimonthly filers with eight or more delinquencies in a 24-month period
- Any filer making recurring tax payments with returned checks
Certain industries are consistently required to bond regardless of payment history, because the tax liability on their products is considered high-risk by default.
| Industry or Business Type | Common Bond Required |
|---|---|
| Alcohol and liquor sellers | Liquor License / Alcohol Tax Bond |
| Tobacco and cigarette retailers | Cigarette Tax Bond |
| Fuel distributors and retailers | Fuel Tax Bond / IFTA Motor Fuel Tax Bond |
| Cannabis dispensaries | Marijuana Tax Bond |
| Fireworks retailers | Firework Tax Bond |
| General merchandise retailers | General Sales and Use Tax Bond |
| Businesses producing or storing taxable goods | Sales and Use Tax Bond (same as sellers) |
That last row is worth noting. The bond requirement does not only apply to businesses that sell taxable products — it can also apply to businesses that produce or store them, depending on state rules.
How Bond Amounts Are Calculated
The bond amount — meaning the coverage level the government requires — is determined by the state tax authority, not the bond company. Formulas vary significantly by state.
Missouri: Bond amount equals three times the average monthly tax liability. A new business buying an existing restaurant whose previous owner averaged $191.50 in monthly tax liability would need a bond of roughly $574.50, rounded down to $570. New businesses with a calculated amount under $500 may submit a minimum bond of $25. Businesses reinstating a revoked license must pay the calculated amount regardless.
Iowa: Bond amount is tied to filing frequency. Quarterly filers post the equivalent of three quarters of tax liability. Monthly filers post five months. Semimonthly filers post three months. Annual filers post one full year, with a minimum of $100.
Texas: Bond ranges from $500 to $100,000, or four times the average monthly tax liability — whichever is greater. Mixed beverage businesses must post an additional gross receipts tax bond.
North Dakota: Bond must be sufficient to cover tax, penalty, and interest. Compliance bonds are held for five years, with early release possible after two consecutive years of timely, accurate filings.
Many state tax agencies publish online calculators to help businesses determine the required bond amount before they contact a surety provider. Checking with your state’s Department of Revenue before applying for a bond quote is time well spent.
What Does a Sales and Use Tax Bond Cost?
The bond amount is what the government requires you to cover. The premium is what you actually pay to activate the bond — and it is a fraction of that total.
| Bond Amount Required | Standard Premium (1%–5%) | Higher-Risk Premium (up to 15–20%) |
|---|---|---|
| $5,000 | $50 – $250 | up to $1,000 |
| $10,000 | $100 – $500 | up to $2,000 |
| $25,000 | $250 – $1,250 | up to $5,000 |
| $50,000 | $500 – $2,500 | up to $10,000 |
| $100,000 | $1,000 – $5,000 | up to $20,000 |
The typical base rate for sales and use tax bonds is around 5%, though applicants with strong credit and clean financials can qualify for rates between 1% and 2%. The standard bonding market generally applies to applicants with credit scores above 650. For higher-risk applicants — those with credit below 700, prior bankruptcies, or a history of tax issues — premiums can start as low as 3% through some high-risk programs and reach 15% to 20% at the upper end.
One important advantage of sales and use tax bonds compared to other types of financial guarantee bonds: they are typically underwritten without collateral. Most financial guarantee bonds require applicants to post collateral as additional security. Sales and use tax bonds, even at higher risk tiers, generally do not carry this requirement. That makes getting bonded more accessible for businesses that need coverage but do not have significant assets to pledge.
Bond Alternatives Not Everyone Knows About
A surety bond is the most common way to satisfy a sales and use tax bond requirement — but it is not the only option accepted by most states. Depending on where you operate, you may be able to substitute:
- A cash bond (cashier’s check, money order, or certified check; personal checks are not accepted)
- A certificate of deposit issued jointly in the name of the state tax authority and the taxpayer (Missouri requires a minimum 24-month term)
- An irrevocable letter of credit issued by a chartered US bank (in Missouri, the letter must be irrevocable and name the DOR as beneficiary; the issuer can cancel with 60 days’ written notice)
Businesses with established banking relationships may find a certificate of deposit or letter of credit more cost-effective than paying annual surety premiums. That said, surety bonds require far less upfront capital, which makes them the preferred choice for most small businesses.
How to Get a Sales and Use Tax Bond
The process is simpler than most business owners expect. It follows four steps: Apply, receive a Quote, Pay the premium, and File the bond with the obligee. Start by confirming the exact bond type and amount required by your state tax authority — the specific number matters, and different states, industries, and filing histories produce very different results. From there, you submit an application to a licensed surety provider with basic business and financial information. Most quotes come back within 24 hours, and many are processed the same day. After paying the premium, the bond document is issued and filed directly with the appropriate government agency. A provider like Swiftbonds handles everything from application through filing, so you are not left navigating the paperwork alone or guessing whether your bond meets the obligee’s specific requirements.
Swiftbonds LLC
2025 Surety Bond Technology Provider of the Year
4901 W. 136th Street
Leawood KS 66224
(913) 214-8344
https://swiftbonds.com/
How Claims Work — and What They Cost You
If your business fails to remit the required sales or use taxes, the government has the right to file a claim against your bond. The process typically unfolds as follows:
- The obligee presents evidence of the unpaid taxes and files a claim with the surety
- The surety investigates to determine whether the claim is valid
- If valid, the surety pays the obligee up to the full bond amount — for example, a $7,000 tax claim can be paid in full from a $10,000 bond
- The principal (you) must reimburse the surety for the full amount paid
- In Texas, a new bond must be filed within 10 days of a claim payout or the business license is suspended
Beyond the financial hit, a claims record follows you. It can make future bond applications more expensive and, in some cases, make renewal of your current bond difficult or impossible — which is the direct path to losing your business license entirely. The cost of staying current on your taxes is always less than the cost of a claim.
Frequently Asked Questions
Is a sales and use tax bond the same as a sales tax bond?
Yes, for practical purposes. The full legal name is sales and use tax bond, but most bond providers, businesses, and even state agencies use both terms to refer to the same instrument. The “and use tax” portion reflects that the bond covers both types of tax obligations — not just taxes collected at point of sale, but also use tax obligations on untaxed purchases brought into the state.
Does this bond cover federal taxes?
No. Sales and use tax bonds are state bonds. They are required by state and local government tax authorities and cover state and local tax obligations only. Federal tax obligations are handled through entirely separate mechanisms.
Can I get bonded if I have bad credit?
Yes. Sales and use tax bonds are available to applicants with poor credit through high-risk surety programs. Premiums will be higher — potentially ranging from 5% to 15% or more of the bond amount — but approval is possible in most cases. Unlike many other financial guarantee bonds, collateral is typically not required even for high-risk applicants, which makes bonding more accessible.
How is the bond amount determined?
The bond amount is set by the state tax authority based on your tax history, business type, and filing frequency. Some states use a multiple of your average monthly tax liability (Missouri uses 3×). Others tie the amount to a specific number of months of projected liability (Iowa uses five months for monthly filers). Many state tax agencies offer online calculators to help you estimate the required amount before you apply for a bond.
Do I need multiple bonds if I sell different taxable products?
Possibly. If your business sells alcohol, tobacco, and fuel, different states may require separate bonds for each product category rather than one general sales and use tax bond. Always confirm with your state and local tax authorities which specific bond types are required for your business.
What happens if I let my bond lapse?
A lapsed bond creates an immediate gap in coverage. Most state tax authorities treat an unrenewed bond as a violation of your permit conditions, which can lead to permit revocation. Renewing before the expiration date — not on the expiration date — is the only way to avoid this outcome.
Are there states where no bond is required?
Five states have no general sales tax at all: Montana, New Hampshire, Oregon, Delaware, and Alaska. No sales tax means no sales tax bond. For all other states, whether a bond is required depends on your business type, industry, and compliance history.
Conclusion
A sales and use tax bond is not complicated once you understand the structure: three parties, one guarantee, one obligation. The government wants assurance that what it is owed will be paid. The bond provides that assurance. What makes this bond worth treating seriously is not the upfront premium — it is what a claims history does to your ability to stay bonded and licensed going forward. Get the right bond, keep your taxes current, renew before the deadline, and the bond is nothing more than a cost of doing business. Let any of those slip, and the consequences compound quickly.
5 Things About Sales and Use Tax Bonds That the Top Sites Are Not Telling You
- The indemnitor on your bond is personally liable — even if you operate through a corporation or LLC.When you sign a surety bond application, you also sign an indemnity agreement as the indemnitor. That agreement makes you personally responsible for repaying the surety for any claims paid on your behalf. The corporate or LLC structure that protects your personal assets from business debts does not protect you from indemnity obligations. This is one of the most commonly misunderstood aspects of surety bonds across all bond types.
- Some state surety companies can be removed from the approved list for failing to pay claims promptly. In Missouri, surety companies that fail to pay a taxpayer’s delinquency within 30 days of notification are subject to removal from the state’s list of authorized surety companies. A business whose surety company is removed has 30 days to file a new bond — or the license is declared null and void. Most business owners have no idea this mechanism exists.
- Bond amounts can be adjusted mid-term if your tax liability increases. Most business owners assume the bond amount is locked in at the start of the year. Many state tax authorities, however, reserve the right to require an increased bond amount at any time if your monthly sales tax liability grows significantly. Businesses that expand rapidly — adding locations, product lines, or revenue — should monitor their bond coverage proactively rather than waiting for a state notice.
- The Streamlined Sales Tax (SST) Governing Board exists specifically to simplify multi-state compliance. If your business sells into multiple states, the SST offers a free registration system that covers all 24 member states at once. SST also maintains a free certified service provider program that calculates, collects, and remits sales and use tax across member states on your behalf. None of this eliminates bond requirements, but it dramatically reduces the risk of the delinquencies that trigger bond requirements in the first place.
- Paying a claim is not the end of the story — it can permanently alter your bonding costs across all bond types. Surety underwriters share claims data industry-wide. A paid claim on your sales and use tax bond does not just affect your next sales tax bond renewal. It can raise premiums or complicate approvals for contractor bonds, license bonds, and other bond types you may need in the future. Protecting your surety bond record is a long-term financial strategy, not just a compliance checkbox.
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