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Surety Bonds

Surety Tax

by Michael O'Brien

To understand a surety tax, it's also important to note that since the Miller Act, surety bonds are required on all construction using public funds. This is to protect taxpayer investments. If the contractor defaults, citizens won't be out money. For this reason, a surety tax may be enacted.

Purpose of Surety Tax

Surety tax assures that surety bonds will be sufficient to cover damages or loss. Surety bonds serve as a way to transfer risk. Surety companies take on the responsibility of making the owner financially whole in the event of a contractor's inability to perform contractual requirements.

Surety Bonds and Insurance

Surety bonds are similar to insurance. With insurance, however, loss is expected. Car insurance covers the car owner in cases of theft or accident. Theft and accidents are expected to occur during the lifetime of a car. Insurance premiums are priced accordingly so the insurance company can stay in business.

Surety bond companies expect contractual fulfillment of those they bond. For this reason, bonds are relatively less expensive. When contractors are bonded, the anticipation is that they will complete construction according to their bid. When contractors default, it can be financially devastating to the surety company.

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