Federal Excise Tax On Fishing Tackle

[Spin Casting]

Recently I have had a lot of questions about Federal Excise Tax on fishing lures. Here is a link that will answer some of the questions.

http://federalasst.fws.gov/sfr/fasfr.html

Chuck Vanover

Tight Line Anglers Products

Ph. 440-277-1511

Fax 440-277-9152

[Bountiful Waters]

In a nutshell, what does this mean to small time guys who sell a few baits on the side?

[Spin Casting]

A tax answer in a nutshell?

I don't know the answer to your question, that would be better directed to an accountant.

I can tell you that as a manufacturer we are required to pay Federal Excise Tax on our sales of products that we manufacture. This is why we add the 10% tax on to the invoice. Unless the company that we are making product for has an approved and current Form 637 on file in our office. This Letter Of Registration allows for purchasing articles tax-free and you are required to give your supplier a certificate specifying that your purchase are for further manufacture. The tax will then be paid each quarter by the company or persons that hold the registration.

I don't remember if there is a fee for registration, it's just an application to submit to get the registration.

I hope this has been some help.

Chuck Vanover

Tight Line Anglers Products

Ph. 440-277-1511

Fax 440-277-9152

[reeves]

It is confusing but my interpretation of the nutshell is that you are obligated to pay the tax if you are manufacturing and completing tackle for sale. Example would be: If I cast 100 spinnerbait bodies and sell them to Mr. Smith and he paints them and turns around and sells them to Mr. Jones who then hangs blades and skirts on them and puts them up for sale, it is Mr. Jones who is liable for paying the 10% tax on those baits.

It is tough to answer Bountiful Waters question in less than an evasive way. First of all, are you registered or just a hobbyist? If you are registered, then YES, you would be obligated to pay the tax. If you are merely a hobbyist and selling some of your buddies some baits here and there, then you are just flying under the radar and should hope they never discover you.

Bottom line! If it were me, I wouldn't worry about it unless I got too big and then I had better get legal real quick. It would hurt to have to pay retroactive taxes and fines, just not worth it. And that's my 2 cents on this issue. Actually my wife has the accounting degree and handles all this type stuff, I think she might even understand some of it. If you have any other questions, I can direct them to her for clarification.

[Bountiful Waters]

Good info guys. If the tax is paid to the origional supplier, I do not see the need to register. I know that makes too much sense and I will probably have to register, regardless of how I see it. Does LC and Barlows, etc.. charge this tax to the buyer?

[Jonah]

No matter how small your company is, if you are advertising baits for sale on this site or anywhere else, your best bet is to pay the tax. You will not be happy if/when you get a letter from IRS. The fine for not complying is not a small one. Contact IRS and get Form 720. The tax is paid quarterly. Add the tax into the price of your product. Good fishing!

[Mags]

I am a little confused by this also. Example; I bought 2000 hooks from Shortys and paid the 10% excise tax to Shortys. I haven't applied for an exemption. If I had an exemption I believe it means Shortys wouldn't charge me the tax and I would pay the tax directly to the IRS. I am putting some lead on the hooks and am then re-selling them. Do I also pay the tax on the re-sale, since it is now a different product? My understanding (and I haven't yet read Form 720. I am going there next) was that the tax applied to the first sale of a product, which is why Shorty's charges it, unless you have the exemption. But since the hook is now a jig and I'm the manufacturer is it still considered the first sale. Very confusing.

[Jonah]

Mags- In your case, you will still have to pay an additional 10% on the jigs you're selling. They call it a remanufactured product. Now, if someone buys your jig, adds something to it and they resell it, they will also have to pay the 10%. IRS is covering their donkey so there aren't any loopholes. They want all the money they can get. I know it doesn't seem fair, but that's how it goes. Here's the funny part. Depending on what IRS agent you get, they might not even know the Form 720 exists. When I called to get the form sent to me, the agent said it didn't exist. When I asked for her name and a letter stating that, she transferred me to someone who knew what I was talking about.

[Spin Casting]

OK here goes,

In a perfect world every one involved has a Form 637 letter of registration.

The Manufacture sells tax free to Mr. Smith and he paints them and turns around and sells them to Mr. Jones tax free, who then hangs blades and skirts on them and puts them up for sale, it is Mr. Jones who is liable for paying the 10% tax. (On his sale price.) In the tax Quarter the baits were sold.

In this case Mr. Jones doesn't have a 637.

The Manufacture sells tax free to Mr. Smith and he paints them and turns around and sells them to Mr. Jones, who then hangs blades and skirts on them and puts them up for sale, it is Mr. Smith who is liable for paying the 10% tax. (On his sale price.) Because he has a form 637 and has a tax liability.

Mr. Jones still has a excise tax liability for the difference in what he bought them for, and his sale price. Because he further manufactured on the baits.

I would suggest talking to an accountant or the IRS, I'm not a tax professional.

I hope this didn't make more confusion,

Chuck Vanover

Tight Line Anglers Products

Ph. 440-277-1511

Fax 440-277-9152

[reeves]

Very well said Chuck, and thanks for keeping Mr. Jones and Mr. Smith in the loop.

Mags, Shorty's charged you the 10% tax because you did not have a 637 form. To them, you are the end-user of the hooks you purchased. This insures the IRS that tax will be paid on them. Had you the 637 form, they would not charge you and you would be liable to pay the tax, unless you continue to manugacture on them and resell to someone else. At that point of sale, it is your responsibility to ask your customer if he is registered. If he is, you charge no tax and if he isn't you have to charge him. Everything crystal cloudy clear so far?

Through all these scenarios, one can see where the IRS is most likely being paid numerous times on the same bait. It is ok for them to double dip, but don't you try it.

[Mags]

Here is a good explanation http://www.rodbuilding.org/library/sportfishingtax.html

I guess I need to file for the 637 exemption, so I don't have to pay the tax to Shorty's. At least they don't bury the cost in their price. By listing the tax seperately they are giving me the opportunity to not pay it (with the exemption) and then collecting it from my customers, where I bury it in the price. My understanding is that the tax is due on the full price paid by the customer, not the difference between the price paid and my cost (ie profit). Correct?

[BLT]

My understanding is if you sell $100 worth of tackle, you owe $10 tax. If you want to buy tackle from a Company that will not knock off 10%, find someone else to deal with. (If you are registered)

[JSC]

If You purchase an item that is subject to the 10% and are going to use in a product YOU must send the seller a copy of the Exempt Form to have on file so the IRS knows that it was sold to You under these conditions.

The same applies if you are the seller. The End guy (Selling Wholesale or Retail) is the one that is responsible if the above conditions have been met. 637 is "Exempt Form" (Copy to each that You purchase from)

720 is Form that You file Your Quarterly Sales on.

Both from IRS (You must apply for this status)

Hope that helps a little

JSC

[Mags]

If you read the rodbuilder thread I posted above they talk about a constructive sales price (60% of the retail price) that can be used when figuring the tax when selling to retail (end user) customers. According to this article this is so you don't pay tax on the retail price as the wholesale price would be much less and the tax is intended to be calculated on the wholesale price. If it is sold to a shop for re-sale (wholesale) then the 10% rule applies. I sell mainly retail, directly to end users, although I manufacture some of the baits myself. I tried looking up the IRS section on figuring a constructive sales price, but it is intertwined in a bunch of sections, making it very hard to decipher. Any comments on this? I could ask my accountant, but my guess is he has never heard of any of this and he charges for research.

Steve

[Mags]

I found the info on constructive sales price.

http://www.taxlinks.com/rulings/1981/revrul81-226.htm

"Constructive sale price; fishing equipment; retail sales. The constructive sale price for fishing equipment, for which the manufacturer does not have a wholesale distributor price, is 60 percent of the actual sale price of the article without regard to cost. Rev. Rul. 80-273 is modified."

Here is more http://www.irs.gov/pub/irs-wd/0018049.pdf

[reeves]

Mags,

Suggestion. Contact the IRS at the State level and ask for clarification on any issues you have with this law. They are more than willing to help and actually want you to understand what you are doing. They were more than helpful here in Oklahoma when I first filed for the exemption. They are human and get just as confused as we do, most of it is all in the interpretation, and it is best you both agree on that.

[dlaery]

Try this link

http://www.asafishing.org/asa/images/government/FieldDirective.pdf

[Mags]

Reeves, will do.

David thanks for the pdf. I haven't looked over the pdf yet, but will in the morning.

Steve

[Spin Casting]

This is the paragraph under Manufactures Taxes Part II in the 720 Forms and instructions booklet.

"Sport fishing equipment (IRS No.41). The tax on sport fishing equipment is 10% (.10) of the sales price. The tax is paid by the manufacture, producer, or importer. Taxable articles include fishing rods and poles (and component parts), reels, fly fishing lines (and other lines not over 130 pounds test), fishing spears, spear guns, spear tips, terminal tackle, fishing supplies and accessories, and any parts or accessories sold on or in connection with these articles. See Pub. 510 for a complete list of taxable articles. Add the tax on each sale during the quarter and enter the total on the line for IRS No. 41."

Mags,

After you receive your Letter of Registration an IRS auditor will make a visit to help you out if you have any questions.

Chuck Vanover

Tight Line Anglers Products

Ph. 440-277-1511

Fax 440-277-9152

[JSC]

Hi Mags

Have not seen this about a sale at retail.

It follows the line of the standard discount schedule for the Fishing Tackle

Industry.

Regular Retailers (NOT DISCOUNTERS) 40% Profit, Wholesalers 25% Profit.

These are rates that have been used for many moons (These % are based on the

SRP). So . what you are presenting is that the maker of a rod would pay

only on the 60% for which he sold it for at retail.

I have not seen this (next time I am checked by the IRS I will ask them).

Note: Generally the Mfg. sells to the Wholesaler (Distributor) at a 50-10 %

off of SRP. (This will give the Distributor a 25 % if he sells it to the

Retailer at 40% off of SRP) Other discounts are given as different sales

incentives . Also generally a 2% off is given if paid on time and if cash is

paid with order a 5% is given (called anticipation) and it goes on from

here.

One thing before I "Hang Up" and this I received a credit by the IRS when

they checked me (A "Kindly" Lady) She checked on how I was invoicing (I had

wondered about this) I included the 10% in the price of the items not as a

add on at the end of the invoice therefore in order to make it work out as

10% you use the amount as .09091%. It is better to have it included for each

item as when the receiver of the items can see immediately what the cost is

.. Otherwise they would have to add the 10% onto each item if it was figured

at the bottom of the Invoice.

One other thing . back in the 60's Tom Mann and I had discussed about

selling worms with out a hook installed should be tax free as it was

incomplete. WRONG he carried it to court and the judge ruled "It is a LURE

and would attract fish" which is the same as regarded for spinners, spoons &

etc.

Hope this helps a little

JSC

[JSC]

Thanks a lot for the information on "Constructive Sales Price" for Fed Excise Tax. Will check it out as soon as I get a chance.

JSC

[ChadK]

so it sounds like the 60% rule would apply to lure making? Holy COW this is confusing!

[JSC]

The 60% if you sell retail is all that would be taxed the 10% FET.

IF THAT RULE IS CONFIRMED WITH THE IRS & I think each person selling this way should have it in writing from the IRS in regards to their business.

(my opinion) ... If I find out more will let you know.

JSC

[Mags]

Yes, this still needs to be confirmed, but according to the IRS links I posted earlier this should be the case on sales from the manufacturer to the end consumer at retail price.

[ChadK]

Thats the way I understood the article from the rod builder. 60% of the cost your selling your bait to the public from your web site, then 10% of that??????

Anybody.....

I'm gonna have to try to find a CPA close by to help get everthing set up so this article was just what I needed right now.

I enjoyed the read guys and everyones input.

I'd be curious to know how many are actually charging this tax right now? I guess those who arent would be a little hesitant to speak up.