A motor fuel tax bond is a financial guarantee that a fuel seller will hand over the fuel taxes it collects. An insurer backs the promise, and the state can claim against it if the seller does not pay.
A fuel seller collects large sums in tax from its customers and is supposed to forward that money to the state. The bond is the state’s protection in case the seller takes the tax and fails to pay it over. A surety company, which is a kind of insurer, stands behind the seller’s promise.
If the seller does not pay, the state collects from the bond instead, and the seller then owes the surety company that money back. So the bond does not erase the debt. It just makes sure the state gets paid first.
Most states require this bond before they will license a company to handle fuel. The size of the bond is usually based on how much tax the business is expected to handle. A seller with clean records and a solid history pays less for it, which is one more reason tidy books are worth keeping.
In useBefore the state would issue the fuel license, it required a motor fuel tax bond sized to a few months of expected tax.
See also Motor fuel excise tax, Position holder