There are new fuel tax bond requirements in Alabama for petroleum seller. In October of 2016, there will be a change to the fuel tax bond that is required. Remember, a fuel tax bond is a type of surety bond and is required by statute and guarantees that taxes will be paid to the state.
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New Fuel Tax Bond Requirement For Alabama Petroleum Product Sellers
Are you running a business as a petroleum products supplier in Alabama? Then it’s worth looking into a new piece of legislation coming into effect on October 1, 2016 that is going to affect your work.
Bill SB 133, which has already been enacted, introduces a change to the fuel tax bond that is required for those who sell petroleum products for which there is an inspection fee charged. The fuel bond amount is increased and there are more types of suppliers now that are required to obtain it.
Let’s walk you through the main changes that the SB 133 bill introduces and how they affect fuel suppliers in Alabama.
What does the Alabama SB 133 bill change?
As already mentioned, the new SB 133 bill increases the bonding amount required of petroleum products sellers in Alabama. It also changes the type of suppliers required to obtain one.
On the state and county level, the new legislation transfers the task of collecting inspection fees on petroleum products from the Department of Agriculture to the Department of Revenue. It doesn’t change the distribution of the fees, so it’s not expected to alter the tax revenue of counties. There is a change in how the revenue is handled, though. Each county should collect it in its RRR Fund and use it according to the regulations of this fund.
How does the bill affect gasoline and diesel suppliers?
For sellers of petroleum products for which there is an inspection fee charged, the SB 133 bill revises the bond requirement. Previously, they had to supply a fuel tax bond between $2,500 and $5,000. With the new law, the requirement is set at $5,000.
The bill also enlarges the scope of entities which are required to post such a surety bond. When it comes into effect in October 2016, the following gasoline suppliers will also have to get bonded:
Suppliers or permissive suppliers of gasoline or undyed diesel which is sold to a licensed exempt entity other than the federal government by a supplier or permissive supplier at the rack;
Supplier or permissive suppliers of dyed diesel fuel or dyed kerosene at the rack at an out-of-state terminal who are selling to an importer for delivery into Alabama that is not a bonded distributor and does not have a valid inspection fee permit;
The first person selling, the person importing, or the bonded distributor of dyed diesel, dyed kerosene, or lubricating oil.
In practical terms, this means that most sellers of petroleum products will have to put aside a bigger sum for their bonding. If they have qualified for the standard bonding market with a credit score above 650, they have been paying a premium between $100 and $150 for a $2,500 bond. Today these sellers would have to get a $5,000, which means their cost would be between $150 and $250.
What’s the fuel tax bond all about
In case you’re already in the business of selling petroleum products, you’re probably aware of the fuel tax bond requirement, which is a part of your licensing process. For more details on the licensing and bonding for Alabama suppliers, please consult the Tax at the Rack FAQ section of the Alabama Department of Revenue.
The fuel tax bond is a type of commercial bond and as such, it is a three-party agreement between your business as the principal, the state of Alabama as the obligee that asks for the bond, and the surety that underwrites it. If you fail to fulfill your obligations under the bond, a claim can be made on it.
In this sense, the bond is an extra layer of security for the state that you will pay all due taxes, penalties or interests that you owe in relation to your petroleum product selling activity. As it’s a financial guarantee, most bonding companies are reluctant to underwrite such a bond because of the higher risk involved. Working with a surety agency that specializes in fuel tax bonds is the right choice in this situation, as it will also help you get a lower rate for your bond.