Alabama - Tobacco Consignment Bond

What Is the Purpose of the Alabama Tobacco Consignment Bond?

For those wishing to initially apply for or maintain a tobacco stamping permit with the Alabama Department of Revenue (AL DOR), a custom Tobacco Consignment Bond must be obtained as a requisite of the permit. Pursuant to the Code of Alabama 1975, Sections 40-25-5 and 40-25-16, the permit authorizes wholesalers or jobbers to make stamp payments through a company check rather than certified funds or cash at a discounted rate, and allows them to defer the payment of stamps. The Alabama Tobacco Consignment Bond ensures that wholesalers or jobbers will comply with all rules and regulations of their tobacco stamping permit and stamp consignment contract. The surety bond also acts as a fiscal guarantee in cases of the principal failing to abide by state tobacco stamping permit regulations, or committing a breach of contract.

Who Needs the Tobacco Consignment Bond In Alabama?

Under Code of Alabama 1975, Section 40-25-5, tobacco wholesalers and jobbers are defined as individuals, dealers, or corporations who buy tobacco products directly from the manufacturer and sell such for wholesale only. If the wholesaler or jobber is looking to apply for or maintain a tobacco stamping permit, a custom Tobacco Consignment Bond must be acquired. 

Individuals, corporations, associations, copartnerships operating more than one tobacco retail establishment in Alabama do not qualify for a tobacco stamping permit and are excluded from the necessary surety bond requirement. 

What Do Surety Underwriters Need to Know About the Tobacco Consignment Bond?

Suretypedia has confirmed with industry experts that the Alabama Tobacco Consignment Bond has a very low-risk status for surety underwriters to take on. The bond has a custom limit that is determined by the Alabama Department of Revenue and is based on the estimated amount of stamps purchased within the next year by the wholesaler or jobber. 

In order to obtain a tobacco stamping permit, applicants must meet the Department of Revenue’s qualifications. Once a permit has been issued and a stamp consignment contract has been officially filed with the AL DOR, the permittee will be expected to follow all regulations pursuant to state tobacco tax laws, tobacco stamping permit rules, and the terms of their contract. Failure to do so could result in large fines (per each offense), forfeiture of the discount given and interest charged, revocation of the permit, misdemeanor charges, possible county jail time, and/or a claim on their bond. 

Due to the severity of the penalties inflicted by the AL DOR, it is common for permittees to try and resolve issues with the Commissioner before such drastic actions are taken.

What Do Surety Claims Handlers Need to Know About the Alabama Tobacco Consignment Bond?

The Alabama Department of Revenue may file a claim on the Tobacco Consignment Bond if the permittee violates state tobacco laws pursuant to Code of Alabama 1975, Sections 40-25-5 and 40-25-16, and/or regulations pertaining to their permit or stamp consignment contracts. However, claims will typically only be filed if the permittee subsequently fails to perform any obligation under their stamp consignment contract which includes failure to pay all stamp fees due and/or failure to report remittances for stamps by the due date of each month. 

It is unclear what steps will be taken by the AL DOR before the pursuance of a bond claim occurs. But if the Commissioner resorts to filing a claim on the wholesaler of jobber’s Tobacco Consignment Bond, the Commissioner or Department should give a clear timeline for the bond handling and claim payout deadline, but if they do not, it is recommended that the surety provider default to their company’s claim handling and payout timeline standards.

How Much Does the Alabama Tobacco Consignment Bond Cost?

The Tobacco Consignment Bond is typically priced at 1 to 10% of the custom bond limit. Surety provider rates can vary depending on the Alabama Department of Revenue determined bond amount, the applicant’s credit score, and the chosen underwriting process.

How Is the Tobacco Consignment Bond Filed In Alabama?

The Alabama Department of Revenue requires the signed and sealed Tobacco Consignment Bond to be filed with their office. The bond must remain on file to maintain an active tobacco stamping permit with the AL DOR. 

The signed and sealed bond form should be mailed to the following address:

Alabama Department of Revenue
Business and License Tax Division
Tobacco Tax Section
P.O. Box 327555
Montgomery, AL 36132-7555

For wholesalers or jobbers looking to initially apply for a tobacco stamping permit, the resident tobacco stamping permit application and non-resident tobacco stamping permit application are available and must be sent to the above AL DOR mailing address. If the permit is granted, a stamp consignment contract must be completed and sent to the above AL DOR mailing address as well. 

Can the Tobacco Consignment Bond Be Cancelled?

The bond may be cancelled at any time by the surety provider or upon the Alabama Department of Revenues’ own accord. Written notice of the cancellation by the surety company must be mailed to the Department. The liability of the bond will be released within 30 days of receiving such notification.

Are Alabama Tobacco Consignment Bonds Renewable?

The Tobacco Consignment Bond is not continuous, and therefore will need to be renewed upon the bond term’s expiration date in order to maintain an active tobacco stamping permit with the Alabama Department of Revenue.