Alabama Tobacco Consignment Tax Bond: A Comprehensive Guide

This guide provides information for insurance agents to help their customers obtain an Alabama Tobacco Consignment Tax bond.

At a Glance:

• Lowest Cost: $100 per year or $10 a month
• Bond Amount: Determined on a case-by-case basis (more on this later)
• Who Needs It: All qualified wholesalers and jobbers of tobacco products that have entered into a stamp consignment contract with the Alabama Department of Revenue
• Purpose: To ensure that the Department of Revenue will receive compensation for financial harm if the wholesaler or jobber fails to pay all required taxes
• Who Regulates Tobacco Wholesalers and Jobbers in Alabama: The Alabama Department of Revenue

Background

Alabama Code 40-25-5 requires all tobacco wholesalers and jobbers who have entered into a stamp consignment contract with the Alabama Department of Revenue to obtain a permit, as well as a surety bond. The Alabama legislature enacted the permit and contract regulation to ensure that tobacco wholesalers and jobbers do not engage in unethical business practices. To provide financial security for the enforcement of such requirements, tobacco wholesalers and jobbers must purchase and maintain a surety bond.

What Is the Purpose of the Alabama Tobacco Consignment Tax Bond?

Alabama Code 40-25-5 requires tobacco wholesalers and jobbers to purchase a surety bond as part of the application process to obtain a permit and qualify for the stamp consignment contract. The bond ensures that restitution is available to the Department of Revenue should the tobacco wholesaler or jobber fail to abide by the regulations outlined in the Alabama Code Title 40, Chapter 25. Specifically, the bond ensures that the Department will receive compensation for financial harm if the wholesaler or jobber fails to pay all required taxes. In short, the bond is a type of insurance that protects the Department if the tobacco wholesaler or jobber violates the terms of their license.

How Can an Insurance Agent Obtain an Alabama Tobacco Consignment Tax Bond?

BondExchange makes obtaining an Alabama Tobacco Consignment Tax bond easy. Simply log in to your account and use our keyword search to find the “tobacco consignment tax” bond in our database. Don’t have a login? Enroll now and let us help you satisfy your customers’ needs. Our friendly underwriting staff is available by phone (800) 438-1162, email, or chat from 7:30 AM to 7:00 PM EST to assist you.

At BondExchange, our 40 years of experience, leading technology, and access to markets ensures that we have the knowledge and resources to provide your clients with fast and friendly service whether obtaining quotes or issuing bonds.

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How Is the Bond Amount Determined?

According to Alabama Code 40-25-5, the Tobacco Consignment Tax bond limit is determined by the Commission of the Department of Revenue. It is important to note that stamp purchases may not exceed the amount of the set bond limit.

Is a Credit Check Required for the Alabama Tobacco Consignment Tax Bond?

Surety companies will run a credit check on the licensee to determine eligibility and pricing for the Alaska Cigarette Stamp bond. Applicants with excellent credit and work experience can expect to receive the best rates. Some surety companies may decline applicants with poor credit or have to pay higher rates. The credit check is a “soft hit,” meaning that the credit check will not affect the applicant’s credit.

How Much Does the Alabama Tobacco Consignment Tax Bond Cost?

The Alabama Tobacco Consignment Tax bond can cost between 2% and 10% of the bond amount per year.  Monthly subscription options are also available. Insurance companies determine the rate based on several factors, including your customer’s credit score and experience. The chart below briefly references the approximate bond cost on the $10,000 requirement.

$10,000 Alabama Tobacco Consignment Tax Bond Cost

*The credit score ranges do not include other factors that may result in a change to the annual premium offered to your customers, including but not limited to, years of experience and underlying credit factors contained within the business owner’s credit report.

Who Is Required to Purchase an Alabama Tobacco Consignment Tax Bond?

Tobacco wholesalers and jobbers who qualify for a tobacco stamping permit and wish to enter into a stamp consignment contract (allows the permittees to purchase stamps at a discounted rate) with the Alabama Department of Revenue must purchase and maintain a Tobacco Consignment Tax bond.

BondExchange now offers monthly pay-as-you-go subscriptions for surety bonds. Your customers are able to purchase their bonds on a monthly basis and cancel them anytime. Learn more here.

How Do Tobacco Wholesalers and Jobbers Obtain a Permit in Alabama?

Tobacco wholesalers and jobbers in Alabama must navigate several steps to obtain a license. Below are the general guidelines, but applicants should refer to the Department’s Tobacco Tax webpage for details on the process.

Permit Period – Tobacco wholesaler and jobber permits in Alabama must be renewed yearly.

Step 1 – Purchase Surety Bond

Tobacco wholesalers and jobbers who enter into a stamp consignment contract with the Department must purchase and maintain a Tobacco Consignment Tax bond.

Step 2 – Submit Permit Application

Qualified tobacco wholesalers and jobbers (i.e. tobacco dealers or corporations who purchase tobacco products directly from the manufacturer and sell wholesale only) must submit a completed Application for Tobacco Stamping Permit (Resident Wholesaler) or Application for Tobacco Stamping Permit (Non- Resident Wholesaler) to the Alabama Department of Revenue. Application fees may apply.

How Do Tobacco Wholesalers and Jobbers in Alabama Renew Their Permits?

Appropriate permit renewal applications (i.e. resident wholesaler or resident wholesaler tobacco stamping permit) must be completed and submitted to the Alabama Department of Revenue. Renewal fees may apply.

What Are the Insurance Requirements for Tobacco Wholesalers and Jobbers in Alabama?

Alabama does not require tobacco wholesalers and jobbers to purchase any form of liability insurance as a prerequisite to obtaining a permit. Tobacco wholesalers and jobbers must purchase and maintain a surety bond.

How Do Alabama Tobacco Wholesalers and Jobbers File Their Bonds?

Alabama tobacco wholesalers and jobbers should submit their completed bond forms, including a power of attorney when submitting their permit applications to the Department of Revenue (see the mailing address listed below).

    Alabama Department of Revenue
    Business and License Tax Division
    PO Box 327555
    Montgomery, AL 36132

The surety bond requires signatures from the surety company, as well as the tobacco wholesaler or jobber. The surety company should include the following information on the bond form:

• The legal name of the individual buying the bond
• Surety company’s name 
• Date the bond is signed

What Can Tobacco Wholesalers and Jobbers Do to Avoid Claims Made Against Their Bonds?

The best way to avoid a claim against an Alabama Tobacco Consignment Tax bond is to pay all tobacco stamp fees, taxes, penalties, and interest that is due to the Department of Revenue in full and on time.

What Other Insurance Products Can Agents Offer Tobacco Wholesalers and Jobbers in Alabama?

Most reputable tobacco wholesalers and jobbers will purchase business liability insurance. Bonds are our only business at BondExchange, so we do not issue any other types of insurance, but our agents often utilize brokers for this specific line of business. A list of brokers in this space can be found here.

How Can Insurance Agents Prospect for Alabama Tobacco Permittee Customers?

Alabama conveniently provides a public database to search for active tobacco permittees in the state. The database can be accessed here. Contact BondExchange for additional marketing resources. Agents can also leverage our print-mail relationships for discounted mailing services.