The South Carolina Department of Revenue has adopted regulations that introduce a tax for cigarette distributors via tax stamps.

The newly adopted regulation will come into effect on Jan. 1, 2019, and will require cigarette distributors to post a surety bond to the department.

SCDOR will be selling tax stamps to cigarette distributors in the state on a 30-day credit period. The cigarette tax requirement was previously set out in Act No. 145 of 2016 and was now introduced by S.C. Regulation 117-1600.

According to the regulation, in order to purchase tax stamps, cigarette distributors will need to obtain a surety bond to serve as a financial guarantee. The amount of the bond required by the regulation is determined to be equal to 110 percent of the estimated tax liability of a cigarette distributor for 30 days. The minimum amount of the bonds allowed by the SCDOR will be $2,000.

This type of bond is required to provide an extra layer of protection for the state.

If a cigarette distributor is found to be in breach of the conditions of S.C. Regulation 117-1600 and the rules of the SCDOR, a claim may be filed against the bond.

After investigating the situation, the surety company may extend compensation to claimants, which may be as high as the full bond amount. In turn, the bonded distributor must then repay the surety for its coverage of the claim.

The bond amount should not be confused with the cost of getting bonded. The bond amount, or penal sum, is the full amount of the financial guarantee provided by the surety bond company that issues and backs the bond. For this bond, it’s a minimum of $2,000.

To get a bond, however, you don't have to pay the full amount but rather just a fraction of it.

Bond cost is determined by the credit score of applicants, as well as by a number of other financial factors. The higher an applicant's credit score, the lower the rate that the surety will offer.

Conversely, if you have a low credit score, sureties will offer you a higher cost on your bond because of the greater risk they assume in bonding applicants with lower scores.

Vic Lance is the founder and president of Lance Surety Bond Associates. He is a surety bond expert. For more information on cigarette tax bonds, visit https://www.suretybonds.org/cigarette-tax-bonds

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