Here's my question. If you purchase components, and sell them as a kit to be used in a rodbuilding class, do you need to collect the FET on the component kit?

Fran I am not 100% sure of what the rules are at present(that is why I pay an accountant) But Back in the early 70's Sabre was nailed for big bucks for selling kits and not collecting the tax. It had something to do with selling a blank and a reel seat together. As a result of that audit a very well know local tackle shop was also caught up in it because they bought such a large amount of components and it didnt jive with their inventory. I think Tom will be able to give you the right scoop on what is up with this now a days.

As a matter of fact, rod building "kits" incur the tax. And yes, even if you have already bought components that had the tax included with them. You are creating a new item - a "kit" so the new item is taxable. On the one hand, it's not like building a rod, but the ruling is that by tossing the stuff in a bag and selling it as a kit you are liable for the tax. It would be figured at 10% of the selling price up to a maximum of $10.

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Thanks, Tom & Doc, for the clarification. I will figure accordingly.

Fran,

Part of the problem lies in what defines a "kit." Generallly if the stuff comes in one package and almost certainly if it is sold under one price then the IRS will consider it a rod building kit.

Now if you will take the time to show the selling price of each item on your invoice, then you are not technically selling a kit and no further tax is due since it was collected and paid on the individual items at the first point of sale.

Where you have to be careful is with any advertising. If you call it a kit and price it as a kit, then you're selling a kit.

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Make two sales a day apart. One for, say, rod blanks. The next day, sell the guides and reel seats. Not a kit, then.

Putter
Williston, ND

I feel for you guys, I buy all my components now from the States, I might pay for it in what I buy but at least I don't have to worry about the tax at this end.

Tom, you present an interesting challenge with interpreting what a kit is.. for instance, when you suggest itemizing the invoice, does that mean if you don't itemize every guide, then the guides constitute a "guide kit?" subject to FET? This gets curiouser and curiouser.

Fran,
As I understand it, a "guide kit" is not subject to FET as a bag of guides technically is not an end item. I think that is a bad term anyway as you aren't assembling guides. More appropriately it would called a guide set.

If I buy all the parts I need for a complete rod, I don't pay FET. If i buy a prepackaged kit of the same items, I would. The kit by definition means that I am using everything in that kit to make a complete rod. If I buy the parts separately, that may not neccessarily be true.

Who cares if it is, or if it isn't? Pay the $10.00 and be thankful that is all it is. Jesse

No, that's not a rod building kit. What would constitute a rod building kit, under the IRS rules, is to have the pieces necessary to assemble a rod in one package and priced in a combined fashion.

There was some confusion earlier with at least one IRS person who viewed simply having all the parts to build a rod shipped in the same box as being a kit. However, it would be impossible to say that the guides in that box were intended for the blank also in that box. They could have been parts destined for various rod projects, not necessarily the same one.

A rod building kit is exactly what it sounds like. If you tell a customer that you're going to assemble a kit - something that has everything he needs to build a rod and then list a single price on the invoice, you're selling a kit. Open the Cabelas or Mud Hole catalog and notice the "kit" prices. Those are kits. If, however, you pick out each individual part and price it separately, it's not a kit. That's all there is to it as far as the IRS is concerned.

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The original intent of this ruling was not to penalize people like yourself for putting together kits. It came about as the result of a case many years ago where a manufacturer was selling partially assembled rods and related parts to consumers as kits in an attempt to skirt paying the tax on the rods they manufactured. So to circumvent that, the IRS wrote in the word "rod kit" as one of the items that were liable for the tax.


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Edited 1 time(s). Last edit at 10/29/2005 09:38AM by Tom Kirkman.