California Cigarette & Tobacco Products Tax Bond: A Comprehensive Guide
This guide provides information for insurance agents to help their customers obtain a California Cigarette and Tobacco Products 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 cigarette and tobacco distributor licensees operating in California
- Who Regulates Cigarette and Tobacco Distributors in California: The California Department of Tax and Fee Administration (CDTFA)
- Purpose: To ensure the CDTFA receives compensation if the cigarette and tobacco distributor fails to pay all necessary taxes or other fees
Background
California Code 30140 requires all cigarette and tobacco distributors operating in the state to obtain a license from the Department of Tax and Fee Administration. The California Legislature enacted the licensing requirement to ensure that distributors do not engage in unethical business practices. To provide financial security for the enforcement of the licensing law, distributors must purchase and maintain a surety bond to be eligible for licensure.
What Is the Purpose of the California Cigarette and Tobacco Products Tax Bond?
California Code 30141 requires all cigarette and tobacco distributors to purchase a surety bond as part of the application process to obtain a license. The bond ensures that restitution is available to the Department of Tax and Fee Administration should the distributor fail to abide by the regulations outlined in the California Revenue and Taxation Code. Specifically, the bond ensures the CDTFA receives compensation if the cigarette and tobacco distributor fails to pay all necessary taxes or other fees. In short, the bond is a type of insurance that protects the state if the distributor violates the terms of their license.
How Can an Insurance Agent Obtain a California Cigarette and Tobacco Products Tax Bond?
BondExchange makes obtaining a California Cigarette and Tobacco Products Tax bond easy. Simply log in to your account and use our keyword search to find the “cigarette and tobacco products 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 California Code 30142, the Department of Tax and Fee Administration will determine the limit for the Cigarette and Tobacco Products Tax bond. A minimum $1,000 limit is required.
Is a Credit Check Required for the California Cigarette and Tobacco Products Tax Bond?
Surety companies will run a credit check on the cigarette and tobacco distributor to determine eligibility and pricing for the California Cigarette and Tobacco Products Tax bond. Applicants with excellent credit and work experience can expect to receive the best rates. Applicants with poor credit may be declined by some surety companies 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 California Cigarette and Tobacco Products Tax Bond Cost?
The California Cigarette and Tobacco Products 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 California Cigarette and Tobacco Products Tax Bond Cost
| Credit Score* | Bond Cost (1 Year) | Bond Cost (1 month) |
|---|---|---|
| 720+ | $100 | $10 |
| 680 – 719 | $150 | $15 |
| 650 -679 | $200 | $20 |
| 600 – 649 | $400 | $40 |
| 550 – 599 | $750 | $75 |
| 500 – 549 | $1,250 | $125 |
*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 a California Cigarette and Tobacco Products Tax Bond?
Individuals who are applying for a cigarette and tobacco distributor license in California must purchase and maintain a Cigarette and Tobacco Products Tax bond for the entirety of their license period.
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 Cigarette and Tobacco Distributors Obtain a License in California?
Cigarette and tobacco distributors in California must navigate several steps to obtain a license. Below are the general guidelines, but applicants should refer to the Department of Tax and Fee Administration’s Getting Started webpage for details on the process.
License Period – California cigarette and tobacco distributor licenses expire annually and must be renewed on or before the licensee’s expiration date.
Step 1 – Purchase Surety Bond
California cigarette and tobacco distributors must purchase and maintain a surety bond for the entirety of their license period.
Step 2 – Complete Online Registration
The California Department of Tax and Fee Administration requires applicants to register via the Online Services portal. In addition to a copy of the surety bond, a list of names and addresses of all agents operating in the state, as well as locations of all distribution centers, sale houses, offices, or other places of business must be provided. Registration fees may apply.
How Do Cigarette and Tobacco Distributors in California Renew Their Licenses?
California cigarette and tobacco distributor licenses expire annually and must be renewed on or before the licensee’s expiration date. Licensees should utilize the Department of Tax and Fee Administration’s Online Services portal for their renewal needs.
What Are the Insurance Requirements for Cigarette and Tobacco Distributors in California?
California does not require cigarette and tobacco distributors to purchase any form of liability insurance as a prerequisite to obtaining a license. Distributors must purchase and maintain a surety bond.
How Do California Cigarette and Tobacco Distributors File Their Bonds?
Cigarette and tobacco distributors in California should submit their completed bond forms, including the power of attorney, electronically when submitting their license applications through the Department of Tax and Fee Administration’s Online Services portal.
The surety bond requires signatures from the surety company and the distributor. The surety company should include the following information on the bond form:
- Legal name and address of the individual buying the bond
- Surety company’s name
- Date the bond is signed
What Can California Cigarette and Tobacco Distributors Do to Avoid Claims Made Against Their Bonds?
The best way to avoid a claim against a California Cigarette and Tobacco Products Tax bond is to follow all license rules and regulations, specifically paying all taxes and other fees due to the Department of Tax and Fee Administration.
What Other Insurance Products Can Agents Offer Cigarette and Tobacco Distributors in California?
Most reputable cigarette and tobacco distributors 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 California Cigarette and Tobacco Distributor Customers?
California conveniently provides a public database to search for active cigarette and tobacco distributors 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.