Registering For Federal Excise Tax

[psilvers]

I am trying to start up a small business with jigs, etc. that would be run from my home. I know that I have to register- and i believe be approved- before we can start selling baits. Do you guys have any idea how long the process takes?

Thanks,

Pete

[smallmouthaholic]

1st- file and get get your federal E.I.N.-employer identification number

2nd-apply for form #637- excise tax ( your local  I.R.S. agent will contacy you after you file for this)

 

Kudos to you for doing it corectly and honestly

[psilvers]

Thanks for the info! No kudos needed, just trying to do it the right way.

It can be a pain in the neck to jump through hoops, but once you are done you don't have to keep looking over your shoulder.

Just my $0.02

Pete

[bass100]

Getting approved for excise tax could take up to 6 months and beings it is a in home business they will probably come out to inspect your work area and ask a few questions.  They come out so that they can decide if it is an actual business or a hobby.

[m.t.pockets]

is the tax paid on the profit made on the lure after deducting the price paid for the components,or is it paid on the selling price of the completed item?

[dlaery]

10% of the selling price.It is like sales tax.

[psilvers]

Thanks for all the info, guys.

Bob- it was especially helpful to know that I don't need to register BEFORE I start. If the business moves at all, i will register so that I don't have to pay the tax on parts, etc. i just want to see whether it moves - AND I need to do so legally.

Thanks for all the help.

Pete

[Salty's]

You will sit down with the irs agent when they get your 637. Ask lots of questions. There is some disinformation here and online about this tax and how you pay it. It's dependent on whether you are a wholesaler, retailer, or both.

 

To paraphrase the IRS and you can read this freely online.. You pay excise tax on any item/lure/bait or component that makes a part of an item/lure/bait that is meant to attract, entice, other otherwise increases the effectiveness to induce a fish to strike it whether or not it has hooks. Anything over 150 lbs strength is tax exempt, as is anything exported.

 

You want to purchase excise tax exempt because you cannot legally deduct the excise tax previously paid from the cost of a bait/lure sold. Ie if you buy a unfinished jig and finish it, any excise you pay to buy the jig cannot be deducted from the excise you are required to pay on the sale of the finished product.

 

If the item is wholesaled you pay excise tax on the sale price (10%)

 

If the item is retailed you pay excise tax (10%) on the constructive sale price using the IRS 60% rule.

 

If you are a retailer and wholesaler, ie you sell direct and you sell to tackle shops, you must have a set wholesale pricelist for every year, and you pay the lesser amount of either 10% of constructive sales price or 10% of the wholesale price.

 

Disclaimer I'm not an accountant so do your own research. I went to the IRS 12 years ago with questions and got in touch with the guy who wrote the IRS "excise handbook" if memory serves me he was in Michigan or Wisconsin. He told me how to properly do this and then sent me all the IRS court cases that they use/base on to collect this tax. US vs Diawa etc etc.  I've been audited numerous times, got nothing to hide. Dad is a CPA and taught me to do stuff right. Like said here previously pay the tax and don't look back. In my case I pass through the tax and I make people pay what's required to be paid on the sale as a separate line item. It's a pass-thru tax.  When they audit you it's a pain in the rump they want copies of everything right down to your underwear size. To me it's a waste of a complete day's time because I pay it right. They need to start enforcing some of this bs of all the underground stuff at shows and in shops etc. I see way too much of this going on daily.. I've called alot of guys out online in forums for doing it and wouldnt say it if it wasn't true. Guys don't realize that 100% of this tax goes back to fund state f&w programs. Ramps, stocking programs, kids programs, epo's etc.

 

The best reading you will find on this is http://www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/Field-Directive-Federal-Excise-Tax-on-the-Importation-and-Manufacture-of-Fishing-and-Archery-Products

 

I would not advise paying any excise tax until you get your ein and register. I would advise seeing an accountant on this and not take message board posts as business advice I would highly recommend you not sell anything until you've had the advice of a good CPA.

[dlaery]

Now, with a step back.  I will have to call my IRS agent.  I was not aware of the 60% for direct retail.  I've been payinng 10% on 100% of retail.  I don't have a wholesale price list though as I do not wholesale.  (I'm actually thinking about dropping tackle making entirely and just making molds.)

 

 

I set in a meeting  at ICAST about this and to make this work you have to have an established Wholesale Price and established Retail Price. You have to actually have both types of customers.

That is the way I understood it, but I could be wrong

[Salty's]

dlaery that is correct

 

I will disagree on paying this without a ein number. I was told explicitly I needed to get the ein number (and yes also no employees)

 

I have found personally the irs people are very willing to help you with issues. Unfortunately there are not alot that know much about this excise tax though. Many have to go read up on it to give you an answer on something.

 

All I care about is to pay what is owed..don't want to scare anyone away, people should do this right if they want to be in the business..as said previously there's more that don't do this legit and that hurts everyone.

 

Hi Bob merry xmas!

[bass100]

This is why anyone looking to start a business should get advice from an expert.  If you are selling fishing lures you have to have a EIN #.  A EIN # is if you have employees or you pay any kind of federal excise tax.  If you sell fishing lures you have to pay an excise tax which means you have to have an EIN #.

[Painter1]

Bob is right.  His statement is 100% correct for federal - "An EIN is not required for a proprietorship (unless they have employees).  A corporation will have to have one as a legal entity not defined by the identity of its "owner".  If you don't have one you just put your SSN down as your tax ID number. 

 

Another consideration:

In Missouri, and in all states I am aware of, an individual is allowed to represent himself in legal matters.  A corporation (S-corp or LLC included) must have licensed professional representation (lawyer or CPA).  

 

 

[JSC]

Back in the "Ice Age" when I applied for submitting my FET I was issued a Fed EIN number at that time ..

Dont know how they do it these days but next time I am aduited for FET will ask  .. All of the agents that I have been associated with in the past were very helpfull  .. There are one or two other points about calculating FET but I dont think I want to "Muddy The Water "  any more than it is.  X cept the 60% deal.   This is an industry accepted (but not allways adheared to) is that a retailer will make 40% of the SELLING PRICE as his GROSS Margin of Profit   .. so if you are makeing and retailing you would pay on the 60% of what YOU sold it for all others pay the FET on what the full amount they sell it for. 

 

Side Note .. for years I was audited once a year (FET) but for the last several have not been I know they have made a lot of changes and I assumed that this was one of them  .. Just as they quit sending out the Quarterly 720 and I did not know about it and failed to send out one quarter on time and of course I was charged a penalty   .. have a batch of blank 720's printed out and calanders all marked on when to mail out.

 

They "Play For Keeps" so keep Good Books and pay your taxes.     

Edited December 6, 2013 by JSC

[Salty's]

JSC you got whacked there too huh? They sent me a $100 penalty how's that for a slap in the face. It was 7 days late filing. Because they didn't tell me they weren't sending the forms anymore. Nice.

 

What I find amusing is the amount of people who just pay 10% of the selling price and don't have a clue. I did this for quite a while til I found out the real story. They won't tell you any of this stuff up front. The form is even structured to show just a straight 10%. I never went back for previous years as I figured my time was worth more but I estimate I threw away ~2k to these guys that didn't have to be.

 

Dad always told me learning wasn't cheap.

Edited December 6, 2013 by Salty's