Fuel Tax Bond Claims Guide

If you are a wholesaler, retailer, importer, exporter, manufacturer, or supplier of fuel (e.g. motor fuel, diesel fuel, aviation fuel, pollutants, alternative fuel, etc.), then you will likely be required by your state’s regulatory agency (obligee) to be licensed and to obtain a surety bond—to be exact, 48 states require some kind of Fuel Tax Bond. 

The purpose of a Fuel Tax Bond is right in its name. The bond acts as a financial assurance to the obligee that the licensee will uphold applicable state regulations, which typically includes filing accurate reports each month and paying all fuel taxes due. 

If taxes go unpaid, funds from the bond will cover such overdue taxes, as well as accrued interest, penalty charges, and any other fees that have stemmed from the individual violating the terms of their license. 

As a surety bond provider, Jet Insurance Company guarantees that restitution will be made to the governing regulator, as long as the claim is justified. However, the Jet team wants to protect our customers from claims as much as possible, so let’s go over the best ways to avoid a license violation and what to do should an official claim arise. 

How to Stay Away From Bond Claims

The following actions can result in disciplinary action and/or a bond claim:

• Committing criminal malfeasance or fraud
• Negligence (e.g. failing to keep accurate records)
• Breach of license contract with the governing regulator
• Failure to timely file a monthly tax return/fuel report (for example, Oregon requires reports to be filed by the 25th of each month)
• Consecutively failing to pay all excise taxes, accrued interest, penalty charges, and any other fees by the monthly due date

Claims Process Details

Who Can File a Claim on a Fuel Tax Bond?

The governing entity (typically your local Department of Revenue) may file a claim directly on your surety bond to cover any kind of financial loss such as past-due taxes, any accrued interest, penalty charges, and any other fees they have incurred in connection with your license violation. 

Are There Limits to Claim Filings?

When it comes to filing a claim, there are limits regarding the amount that may be paid out by the surety company (Jet) and when a valid claim may be filed.

The amount of liability covered by the surety bond is represented by the bond limit (e.g. $5k, $10k, $20k, etc.). Fuel Tax Bonds are almost always a custom limit, determined by the obligee, with details for calculation generally found in the statutes. Fuel Tax Bond limits are typically based on your license type and the estimated amount of fuel purchased each month, as well as the total tax levied. 

As for when a claim may be filed upon a Fuel Tax Bond, this process may only take place during the duration of the licensee’s bond term. It is important to note that cancellation periods do extend the window of liability for a Fuel Tax Bond. However, this required timeline typically only lasts for 30, 60, or 90 days.

What Would a Fuel Tax Bond Claim Look Like?

Suppose that Matt is running a business as a motor fuel distributor in the State of Alabama. According to the Alabama Department of Revenue (ALDOR), Matt’s preceding month’s tax return and reports are to be filed by the 22nd of each month. Unfortunately for Matt, his business is not doing very well financially and he is currently past due on last month’s tax fees.

Complaint

Matt has now failed to submit his fuel tax payments and reports for a consecutive 30 days past their original due date. The ALDOR has notified Matt of his license violation with a chance to resolve this issue by paying all fuel taxes and any penalty fees that are due. However, Matt must pay these charges immediately in order to be free of license repercussions and additional charges. 

Investigation

Matt has decided to shut down his fuel distribution business and continues to put off paying the Alabama Department of Revenue his overdue taxes and fees. The ALDOR is forced to file a claim on Matt’s Fuel Tax Bond. Notice of such claim is immediately sent to the surety provider (Jet).

Once Jet receives the claim notification, contact is made with Matt and he is asked to provide all available information and documentation regarding the claim. These details are used for our Jet’s review and investigation to ensure that our bondholders won’t fall victim to a baseless claim.

Restitution

Unfortunately for Matt, it is very clearly documented that he is indeed over 60 days past due on his fuel taxes, so Jet deems the claim justified and makes the due payment to the ALDOR. Funds from Matt’s Fuel Tax Bond will be used to cover his overdue fuel taxes, the interest the taxes have accrued over the 60-day period, and any penalty charges that he faces due to his license violations (payouts will never exceed the bond amount). 

Indemnification

Matt is not quite done with this problem. Once Jet has fulfilled the Fuel Tax Bond claim payment, Matt is then expected to reimburse Jet Insurance Company for the funds that were distributed to the ALDOR on behalf of his license violation (all surety companies require reimbursement for claim payouts). 

If Matt fails to fulfill this requirement, he will have problems in the future with securing another surety bond. As you may recall, 48 states in the U.S. require some kind of surety bond when working in the fuel and/or pollutants industry, so it would be in Matt’s best interest to fulfill what is owed to his surety provider. 

Every state’s laws vary in one way or another, so Jet recommends reading through the regulations that apply to fuel and/or pollutant workers in your state. Take a look at the chart below for further details.