North Carolina Cigarette Distributor Tax Bond: A Comprehensive Guide

July 12, 2022

North Carolina Cigarette Distributor Tax Bond

This guide provides information for insurance agents to help their customers obtain a North Carolina Cigarette Distributor Tax bond

*This page focuses exclusively on the bonding and licensing requirements for cigarette distributors. To learn more about the requirements for wholesale dealers, retail dealers, and manufacturers dealing in tobacco products other than cigarettes., check out our North Carolina Tobacco Products Tax Bond page.

At a Glance:

  • Average Cost: Between 1% to 12.5% of the bond amount per year based on the applicant’s credit history
  • Bond Amount: Between $2,000 to $2 million (more on this later)
  • Who Needs it: All cigarette distributors operating in North Carolina
  • Purpose: To ensure that the Department of Revenue will receive compensation for financial harm if the distributor fails to pay all required taxes
  • Who Regulates Cigarette Distributors in North Carolina: The North Carolina Department of Revenue

Background

North Carolina Statute 105-113.12 requires all cigarette distributors operating in the state to obtain a license with the Department of Revenue. The North Carolina legislature enacted the licensing requirement to ensure that distributors of non-tax-paid cigarettes pay all required taxes. 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 North Carolina Cigarette Distributor Tax Bond?

North Carolina requires distributors of non-tax-paid cigarettes to purchase a surety bond as part of the application process to obtain a business license. The bond ensures that the Department of Revenue will receive compensation for financial harm if the distributor fails to abide by the regulations outlined in the North Carolina Statute 105-113.13. Specifically, the bond protects the department if the distributor fails to pay all required taxes. In short, the bond is a type of insurance that protects the Department of Revenue if the distributor violates the terms of their license.

North Carolina Cigarette Distributor Tax Bond Form

North Carolina Cigarette Distributor Tax Bond Form

How Can an Insurance Agent Obtain a North Carolina Cigarette Distributor Tax Surety Bond?

BondExchange makes obtaining a North Carolina Cigarette Distributor Tax Bond easy. Simply login to your account and use our keyword search to find the “Cigarette” 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?

North Carolina Statute 105-113.13 dictates that the bond amount must be equal to two times the distributor’s average expected monthly tax liability. The statute also dictates that the bond must be a minimum of $2,000 and a maximum of $2 million.

Is a Credit Check Required for the North Carolina Cigarette Distributor Tax Bond?

Surety companies will run a credit check on the applicant to determine eligibility and pricing for the North Carolina Cigarette Tax Distributor 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 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 North Carolina Cigarette Distributor Tax Bond Cost?

The North Carolina Cigarette Distributor Tax Bond can cost anywhere between 1% to 12.5% of the bond amount per year. Insurance companies determine the rate based on several factors including your customer’s credit score and experience. The chart below offers a quick reference for the cost of a $10,000 bond requirement.

$10,000 Cigarette Tax Distributor Bond Cost

Credit Score Bond Cost (1 year)
720+ $100
680 – 719 $150
650 – 679 $200
600 – 649 $400
550 – 549 $1,250

*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 the Bond?

North Carolina requires cigarette distributors to purchase a bond as a prerequisite to obtaining a business license. North Carolina Statute 105-113.4 defines a cigarette distributor as either:

  • A person that purchase non-tax-paid cigarettes from a manufacturer and either stores, sells, or otherwise disposes of them
  • A manufacturer of cigarettes

Retail dealers that purchase tax-paid cigarettes from a licensed distributor are exempt from this definition.

How Do Cigarette Distributors Apply for a License in North Carolina?

Cigarette distributors in North Carolina must navigate several steps to obtain a license. Below are the general guidelines, but applicants should refer to the application form for details on the process.

License Period – All North Carolina Cigarette Distributor Licenses expire on June 30 of every year and must be renewed before the expiration date

Step 1 – Purchase a Surety Bond

Cigarette distributors must purchase and maintain a surety bond in an amount equal to two times the distributor’s average expected monthly tax liability. The bond must be a minimum of $2,000 and a maximum of $2 million.

Step 2 – Complete the Application

All North Carolina Cigarette Distributor License applications, including a completed service of process form, should be mailed to the following address:

North Carolina Department of Revenue
3301 Terminal Drive, Suite 125
Raleigh, NC 27604

Distributors must complete the application in its entirety, and pay a $25 fee. North Carolina requires distributors to obtain a separate license for each place of business they operate.

How do North Carolina Cigarette Distributors Renew Their Licenses?

Distributors should mail their completed renewal applications to the following address:

North Carolina Department of Revenue
3301 Terminal Drive, Suite 125
Raleigh, NC 27604

All North Carolina Cigarette Distributor Licenses expire on June 30 of every year and must be renewed before the expiration date.

What are the Insurance Requirements for Cigarette Distributors in North Carolina?

North Carolina does not require cigarette distributors to obtain any form of liability insurance as a prerequisite to obtaining a license. Cigarette distributors must purchase and maintain a surety bond in an amount equal to two times the distributor’s average expected monthly tax liability. The bond must be a minimum of $2,000 and a maximum of $2 million.

How Do North Carolina Cigarette Distributors File Their Bonds?

Distributors should mail their completed bond forms, including the power of attorney, to the following address:

North Carolina Department of Revenue
3301 Terminal Drive, Suite 125
Raleigh, NC 27604

The surety bond requires signatures from the surety company that issues the bond and from the distributor. The surety company should include the following information on the bond form:

  • Legal name of the entity/individual(s) buying the bond
  • Surety company’s name
  • Bond amount
  • Date the bond goes into effect
  • Date the bond is signed

What Can North Carolina Cigarette Distributors do to Avoid Claims Made Against Their Bonds?

To avoid claims against their bonds, cigarette distributors in North Carolina must ensure that they pay all required taxes on time and in full.

What Other Insurance Products Can Agents Offer Cigarette Distributors in North Carolina?

Although not required, most reputable cigarette distributors will purchase 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 North Carolina Cigarette Distributor Customers?

North Carolina unfortunately does not provide a public database of active cigarette distributors in the state. We suggest contacting the Department of Revenue’s Excise Tax Division at (919) 707-7500 to obtain this information. Contact BondExchange for additional marketing resources. Agents can also leverage our print-mail relationships for discounted mailing services.

2022-07-14T18:06:24-04:00