I am reletively new to rodbuilding with only a few under my belt. However people like my work and have inquired about buying rods off me. What % should a labor fee be compared to the cost of materials. I was thinkin 40 % is that OK?

The best idea I have heard is to price your rods at the same price as the closest comparable factory rod and then move up from there depending upon the better quality components you may have used.

In other words, lets say you are building a Loomis SJ723 and the factory version is $165. Your rod should be no less than $165 and even a bit more if you used better and more expensive components than what the factory used. It's a good guide line when first starting out.

I never really thought about that. Thanx!!

Make your labor free & just try to recoup your expenses when just starting out. That way someone else is paying for your trials & errors. Only charge for labor when you're involved enough to get a business license and can sell confidently to anyone. I felt that I got free training & experience by building rods for friends & just being reimbursed for my costs until I became proficient enough to charge a fair rate. I knew the time had come when people I didn't know were calling me.

I agree with Dick working for free has allowed me to try new methods and materials also to experiment a little

Don,

I you are really interested in selling custom rods, you'll need to register with the IRS and pay an excise tax. Once you register, they will come visit you to make sure you understand the tax rules.

There is a 10% federal exise tax on everything that has not already been taxed. Do a search on this board for more information.

FYI: In my last meeting with the IRS, the agent said all rods regardless if they are sold or not, are supposed to be taxed. The tax becomes a "use" tax rather than a "sales" tax. The agent also said not to use the constructive selling price as Tom Kirkman indicates in the RodMaker, however, I assume he also received that information from the IRS.

I hope this information is useful.

Greg
[www.ReelsAndEels.com]

The 60% rule (Constructive Sales Price) is what you use when you sell rods to the end user. If the IRS agent said not to use it, then he is mistaken and you need to talk to an excise tax specialist on the matter. The rule is ironclad and fully detailed under IRS ruling 26CR48.4216(9)-2:rul.81-226. (Rods sold for resale are taxed at 10% of the selling price.)

Previously taxed components must also be retaxed once they are used on a fishing rod. In other words, you cannot deduct previously paid taxes on components used in the construction of the rod. Not only is it rare that you can provide validation of the exact amount paid by the manufacturer to the dealer before you bought the item, but once you construct a rod you are no longer selling components, you are selling a fishing rod, something that you did not have when you started. As a new item, tax is due on the total amount of the selling price of this new item.

I'm not guessing here. I have spent considerable time in Washington with the people who made and wrote the rulings. The excise tax rules are really quite simple and yet still greatly misunderstood, even by IRS field agents.

.....................

just seconding Toms explanation,at the conclave a June Rittscher who is the leading exercise tax specialist, at least in
Jacksonville Fl. said much the same thing for any further qustions she can be contacted at {904}665-1266
John

From the handouts at the conclave
60% constructive sale Price rule
Rev.rul 81-226 states that if the articles are sold at RETAIL by manufacturers or importers who DO NOT SELL like articles to wholesale distributors,the constructive sales price is 60 percent of the actual selling price,after taking into account applicable adjustments from sec 4216. Note this rule does not apply to sales made to a retailer.
June also stated that many of the agents are confused about the rule and if having a problem have them contact her for clarifacation.
John

Another item regards the tax as a "use tax" which seems to be incorrect. I have been told that it is a use tax by two IRS excise tax agents and challenged them both on their definition. Neither has been able to back up their definitions by any actual IRS rulings thus far.

I believe the idea that tax must also be paid on rods that are held for use by the maker, or given as gifts, stems from the fact that rod kits are taxable at the first point of sale. At first glance and without the underlying reason why kits were taxed in the first place, it is easy to assume that the tax applies to any and all rods regardless of whether they are actually ever sold. But that is an assumption that appears to be wrong at this time. Unless you sell the rod, no tax is due. I will do more research on this when I have time, but thus far I cannot find, nor can any of the IRS agents I have worked with find, any reference to the tax being other than an excise sales tax to be paid at the first point of SALE. "Sale" appears to be the key word here and nothing is mentioned concerning "Use".

June Rittscher, who is an excise tax specialist for the IRS, said she had seen the article I wrote for Fly Tackle Dealer and was given a copy of the article I wrote for RodMaker and said the information contained in them was completely accurate.

What most of us need to realize now is that via the internet, custom rod builders who sell rods are very easy to find and those who are not in compliance will be sought out and found by the IRS. If you're not filing, or not filing correctly, now is the time to get your ducks in a row.

............

Tom,

Where can I find information on the excise tax, and how to comply.....

Thanks

Ray Alston

Send an SASE to me at Rodmaker, PO Box 1322, High Point, NC 27261 and I will send you the information you need.
................

This is what I originally planned to do, but I dont see any point in doing great workon something for 8 or so hours and then not gettin payed for my hard work. I talked to my customer and we both agreed that 30 percent seemed fair. Which came out roughly to 40 dollars.
Thanx for all ur input, I wont be lookin into a real bussiness until next year though
Tight wraps
~Don~

Tom,

I am going to send this message thread to the IRS agent that I was dealing with. The individual is an "excise tax specialist" as you suggested.

I still have the feeling that this individulal will not allow me to use the constructive selling price... only time will tell.

Thanks.

Unless I misunderstood your post you are only charging 30% of the material as labor. At 8 hours and $40, you are making less than minimum wage! You have to determine first how much you want to make per hour at your speed.

Believe me, if you start off that low, everyone is going to expect those low rates. It is much better to start out with a good, fair price. Less than minimum wage is not a fair price. If the guy liked the work that you did, he should be willing to pay what you want.

Check out my post on labor rates and then refigure the price for the rod. For customs, I charge as much as 50% more than the repair rates.

[www.rodbuilding.org]

Kirkman is the one that kicked me in the arse and finally beat my head into submission on not charging enough for my customs. Now, if someone doesn't want to pay the rate, I just don't do the work.

My repair rate may seem low to the readers but you have to understand that I have been repairing rods and reels a long time and my speed allows more work to be done in an hour, thus increasing my hourly rate. What may take someone with less experience and hour to do, I may can do it in 30 minutes.

Well Im still thinking about it, but I am fairly new to rod building. I would rather gather experience from this so when I have a company someday I will be able to charge 100 or so dollars for my labor. Thanks for all your input!
~Don~

Don,
You have to chare more than that if you ever plan to make money!! When I started I charged at the minimun 50 bucks. Now I am a custom builder. My labor is over 150 for a nice rod today