Excise Tax Bonds

Excise tax bonds can come into play in multiple industries and vary by state and county.  For instance, in Maricopa county ADOT has issued Transportation Excise Tax Bonds to help fund the design and/or construction of certain highways within Maricopa County. Excise tax bonds may also be used in liquor, state and fuel industries.

What Are Excise Tax Bonds?

“A special tax bond is a type of municipal bond that is repaid with revenues derived from taxation of a particular activity or asset. These bonds are repaid with either excise taxes or special assessment taxes, but not by ad valorem taxes” (https://www.investopedia.com/terms/s/specialtaxbond.asp). In layman’s terms a special tax bond is raised by a federal, state or local government entity. These funds are generally used for special projects such as improving highways, public schools, etc. Investors that purchase these bonds earn interest and then when the bond matures are paid back the principal.

Bonds are issued for a specific purpose and the funds can only be used for that purpose. Investors need to be paid interest on their investments which is where excise taxes come in. Excise taxes are implemented on a specific item to then pay the interest to the investors. For example, if a bond is issued to help fund cancer research, a tax may be levied against the sale of cigarettes to produce excise tax revenue.

Excise Tax Bonds in Maricopa County

Sales tax bonds or, excise tax bonds are types of surety bonds, which many businesses are legally required to have to operate in Casa Grande and Maricopa County. These types of tax bonds are typically required on “luxury” items such as cigarettes, alcohol, gambling, etc. The state of Arizona reserves the right to require businesses to post a bond to make sure that the business can pay the tax amount. In this manner, the state protects its potential revenue and earnings.

How Do These Bonds Work

There are three parties involved in these types of bonds.  There is the principal, the obligee and the surety. Here’s how each party is involved in the process:

The Principal: The principal purchases the bond to ensure the revenue is ultimately paid. If you need are required to provide a bond you would act as the principal.

The Obligee: The obligee is the government entity that is requiring the bond. The obligee is the entity that’s financial interests are protected by the bond.

The Surety: The surety is the bond company (us). We can issue the bond and provide financial security to the obligee. We can discuss your specific industry needs and ensure that you meet state and local bond requirements and bond amounts for the best price possible.

How Much Will Your Excise Tax Bonds Casa Grande Cost?

There are many different factors that go into determining the cost of your bond.

  • Risk – Think of your surety company like an insurance company. If you don’t hold up your end of your financial and business obligations, the surety has to pay the bond to the government entity. The higher the risk that the surety has to pay out the bond, the higher the cost of the bond. 
  • Credit Score – Credit scores are often used to determine your fiscal responsibility. Businesses with good credit are typically rewarded with lower rates and costs while lower credit scores may result in higher costs. 
  • Previous History – If you have a strong track record of successfully meeting your businesses financial obligations you can often obtain better rates than a new or struggling business. 
  • Bond Amount – The higher your required bond amount the higher your rates/cost. Conversely, the lower your bond amount the lower your rate/cost.

If you are looking to do business in Casa Grande or Maricopa County and think you need a bond, give our office a call. Our experienced staff can walk you through the process and requirements and make sure you get the bond you need so that you can focus on what’s important – running your business.