An Indiana fuel tax bond is a surety bond the Department of Revenue requires before it will issue a gasoline distributor’s or special fuel license. The bond guarantees that if you fall behind on fuel taxes, the state can recover what you owe up to the bond’s face amount. The required amount starts at a $2,000 minimum and scales with your estimated tax liability. The authority sits in Indiana Code 6-6-1.1-406 for gasoline distributors and in a parallel provision at Indiana Code 6-6-2.5-47 for special fuels like diesel.1Indiana General Assembly. Indiana Code 6-6-1.1-406 – License to Distributor; Bond, Letter of Credit, or Cash Deposit
Who Has to Post One
Any business applying for a gasoline distributor’s license may be required by the Department of Revenue to post a bond as a condition of licensure. The statute gives the department discretion, but in practice most distributors are asked to provide one before approval. A separate but similar requirement applies to special fuel operators under Indiana Code 6-6-2.5-47.
The bond is tied to the license itself. You cannot legally distribute taxable motor fuel in Indiana without a valid license, and the department can refuse to issue one until you file acceptable financial security. That applies equally to first-time applicants and to existing distributors whose prior bond has been canceled.
How Much Bond You Need
The department’s administrator sets the amount using a straightforward formula: the distributor’s estimated tax liability for a three-month period. The floor is $2,000, and there is no fixed ceiling in the statute. Whatever three months of estimated taxes works out to for your business is what you post.1Indiana General Assembly. Indiana Code 6-6-1.1-406 – License to Distributor; Bond, Letter of Credit, or Cash Deposit
A small distributor moving modest volumes might need only the $2,000 minimum. A large operation handling millions of gallons could face a requirement well into six figures. The administrator can also adjust the amount later if your volume or payment history changes significantly. New applicants with no track record should expect a conservative estimate.
What the Bond Costs
You do not pay the full bond amount. You pay an annual premium to the surety company, typically a small percentage of the face amount. Fuel tax bond premiums generally run from about 0.5% to 3%, driven mainly by the owner’s personal credit, the company’s financials, and the size of the bond.
On a $2,000 minimum bond, that works out to as little as $10 to $60 per year. On a $100,000 bond for a high-volume distributor, the premium might run $500 to $3,000 annually. Applicants with weaker credit land at the high end of the range, and some sureties will decline to write the bond at all for applicants with recent bankruptcies or tax liens. Quoting more than one surety is worth the effort; premiums for the same risk can vary meaningfully.
Alternatives to a Surety Bond
Indiana does not force you into a surety bond. The statute allows three forms of financial security: a surety bond, a letter of credit from an approved financial institution, or a cash deposit.1Indiana General Assembly. Indiana Code 6-6-1.1-406 – License to Distributor; Bond, Letter of Credit, or Cash Deposit Each must satisfy the same dollar threshold.
A cash deposit ties up the full amount with the state for as long as you hold the license, which is impractical at larger bond sizes. A letter of credit keeps the money at your bank but still ties up credit capacity. Most distributors choose the surety bond because the premium is a fraction of the face amount and leaves working capital free.
The Forms and Filing
Indiana uses a different form for each fuel type. Gasoline distributors file Form MF-102, the Gasoline Distributor’s License Bond. Special fuel operators file Form SF-2, the Special Fuel License Bond. Both are available as fill-in PDFs through the Department of Revenue’s fuel tax forms page.2Indiana Department of Revenue. Fuel Tax Forms
The form captures the principal’s legal business information, the surety’s company details and Indiana resident agent, the bond amount set by the administrator, and the effective date. It is drafted as a continuing bond, so it stays in force from the effective date until formally canceled. The principal’s owner or president signs, the surety’s officers sign, and a notary acknowledges execution.3Indiana Department of Revenue. Gasoline Distributor’s License Bond
The surety company itself must be one approved by the administrator. A bond from an unapproved insurer will be rejected no matter how clean the paperwork is, so confirm approval status before paying for the bond. The FT-1 license application is handled through the INTIME portal, but the bond forms require original signatures and notarization, so submission is often handled on paper. Check current options with the department before filing.
Cancellation, Replacement, and Lapses
Because the bond is continuing, it ends only when one of the parties cancels. A surety can cancel by giving 60 days’ written notice to both the principal and the Department of Revenue; cancellation takes effect at the end of that period unless the department approves a replacement bond first. A principal cancels by filing a new bond and notifying the current surety, with cancellation effective when the department accepts the replacement.3Indiana Department of Revenue. Gasoline Distributor’s License Bond
Cancellation does not erase past liability. The surety stays on the hook for tax delinquencies that occurred before the cancellation date, and any leniency the department extended to the principal does not reduce the surety’s obligation.
A lapse in coverage is the fastest way to lose your license. When a surety requests release, the department notifies the distributor, who then has 60 days to file a qualifying replacement bond under IC 6-6-1.1-406. Miss the window and the administrator is required to cancel the license.4Indiana General Assembly. Indiana Code 6-6-1.1-409 – Release of Surety of Distributor’s Bond If a letter of credit is the security on file, the replacement window is 180 days. Operating without a license means you cannot legally distribute fuel in Indiana, so any gap puts the business at risk. If you can see a surety relationship going bad, start shopping for a replacement before the formal notice lands.
Who Actually Pays if There’s a Claim
Every fuel tax bond involves three parties. The principal is the distributor who buys the bond. The obligee is the State of Indiana, acting through the Department of Revenue. The surety is the insurance company that backs the bond. Indiana law requires the bond to name the applicant as principal and the state as obligee.1Indiana General Assembly. Indiana Code 6-6-1.1-406 – License to Distributor; Bond, Letter of Credit, or Cash Deposit
If you fail to pay fuel taxes, the department can file a claim against the bond, and the surety pays the state up to the full bond amount. That is not the end of your exposure. Every surety requires an indemnity agreement before issuing the bond, and under that agreement you must reimburse the surety for everything it pays out, plus any legal costs. Sureties routinely require personal indemnity from business owners, which puts personal assets on the line if the business cannot repay. A surety bond is not insurance that absorbs the loss. It functions more like a guaranteed credit line, and anything the surety pays on your behalf, you owe back.