Suppose a hobbiest has become skilled enough that people are increasingly making requests that a rod be built for them. If you simply bill them for the expense of the parts with no labor charge or profit being made of any kind.... on the theory that the opportunity to develop skills using other people's materials is reward enough at the moment, does one become liable for the tax collection issues discussed here in a recent thread? If that is naughty, what about having them buy their own parts directly and hand them over to the hobbiest for assembly?

Pesco Ergo Sum

My understanding would be that as soon as you are being paid for your work, i.e. making a profit, then you would be required to make all the necessary moves for tax collection and declaration, etc.

I believe you dont even have to make a profit! As long as money changes hands it is a transaction.

Freddwhy (Rapt-Ryte)

That would make you a manufacturer, yes. At least in the eyes of the IRS. They are not concerned with whether or not you make a profit - that has nothing to do with it.

The FET is due from anyone who purchases a fishing rod (or any other fishing and many boating items) and it is the job of the manufacturer to collect the tax at the first point of sale. When selling a fishing rod for any amount, that would be you.

Many people have attempted to get around this and other taxes by having the customer "buy" the parts or leaving off a butt cap or tiptop and having the customer install that, in effect saying that what they sold wasn't yet a "fishing rod." The intent is clear, however, and the IRS is every bit as smart or smarter as those who attempt to use fraud or contrive some means to get out of collecting and paying the tax. You do not want to do this.

As far as a business, you would be expected to file a schedule C with your 1040 form and that is where you would report any profit or loss. But that has nothing to do with the FET.

Now as far as other entities and how they view it, it is possible that your city and possibly your state would not consider you a manfacturer in this scenario. The state most likely would in order to collect sales taxes, but cities differ on what they consider a business, or a manufacturer. You'd have to ask them and see what licenses and other things might be needed in order for you to do what you state here.

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

The basic rule is that if money changes hands, you are a business and subject to whatever business licenses, taxes, or fees might be required in your jurisdiction. Period.

Anyone who tells you otherwise has either never read the Federal, State, or local statutes, regulations, or rules, or has never been audited by any taxing authority or agency.

BTW, the authorities and agencies that have the right to look at your books and assess you fines and penalties not for not paying the tax, but for simply not filing the forms they require, include some you might not have thought of - for example, the State Unemployment Fund folks (even if you have no employees), and various local agencies that require you to have a permit to operate a business in your home, much less in a shop. And you might find yourself in violation of a regulation that says you can't have a business in a residential area. In fact, some homeowners associations also can come after you for that - just depends on what kind of neighbors you have.

Uncle Russ
Calico Creek Rods

The final question at the end however remains unanswered.

If someone buys parts at retail, and you are simply putting it together with no further expectation than satisfaction of both parties, it is my understanding that there was never a monetary exchange. That consumer remains the components buyer, and you only did that person a favor. That is unless the components are now considered of monetary value instead of a consumer product? I have no idea what the answer is, only simply pointing this part out.

Lets say I purchase the components for my personal use and for R and D purposes and then sell the rod as a second hand entity, I've never heard of anyone paying tax on a used fishing rod!

Steve Bro
(BroCo Custom Rods)

If you do not charge or barter with the person for putting his rod together, then there is no sale. But if you receive compensation, then a sale has been made.

If you sell a used rod of your own, that doesn't make you a business. But if you do this on a regular basis, well... the IRS isn't stupid.

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

The best way to deal with this is to fill out the order form for the components. Have your friend buy them on his credit card and shipped to his house. Then he can bring them over one weekend and you can put them together for him.

That way NO part of the financial transaction has involved you.
You are merely doing a friend a favor.

Ray

I haven't considered this but I do it all the time. I hardly ever make a profit off of a rod I build. But, I cannot afford to only build rods for myself and continue to get practice. I look at it like gunsmithing I do, The law on that states that if I do it "occasionally" I do not have to have an FFL or carry a business license. Occasionally is not defined where I read that law. I think you have to turn a certain amount of profit before it becomes considered a business. It would be like telling someone they had to charge tax at a yard sale. Understand that none of my comments are backed by ANY real legal knowledge.

Most states consider it a business as soon as a transaction takes place.

The FET is due based on the selling price of the rod, not on whether any profit was made. Even a single sale incurs this liability.

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

Does this mean that if I throw a barbeque, cook the food, and my friends pitch in for the food I now have to declare this ? It's not the perfect analagy but it's not far off if you are just building a rod for a friend ...............Kyle

Of course, I never make my friends pitch in for the pig or brisket, but still?

I bought the rod parts(the pig), built the rod(cooked the pig and performed a service), gave it to my friend who received the rod(,who ate the pig), and then asked him to pay for theRod parts( final cooked BBQ with no profit). It is right on the more I think about it. Has anybody here declared their BBQ ?



Edited 1 time(s). Last edit at 09/12/2008 04:34PM by Kyle Ligon.

Kyle, Not a very good analogy because the FET (Federal Excise Tax) in question deals specifically with the manufacturer of fishing (and I think boating) products. It doesn't care whether you make or lose money, you business status, etc. I have a friends who makes and sells salmon lures and sells them at a boat ramp (not a shop but from his truck) and he pays the FET on them by filing a 720 quarterly

Mike (Southgate, MI)
If I don't want to, I don't have to and nobody can make me (except my wife) cuz I'm RETIRED!!

Not arguing Mike, but your friend was making money, I was just recouping my money for the BBQ. I wasn't reffering to the FET , but some of the other posts............Kyle

Also didn't know the FET was only fishing rods.............Kyle

I have an accountant



Edited 1 time(s). Last edit at 09/12/2008 04:43PM by Kyle Ligon.

If one takes the absolutist tone of some of the replies here to the absurd limit, you could get in trouble teaching rodbuilding to someone. Say you demonstrate wrapping on a guide or two. If the student doesn't redo these, why you have manufactured at least part of this rod, and therefore liable for all this blizzard of paperwork. Underlying all this, I can't help feeling that there is some resentment from those trying to make a buck selling custom rods against those who aren't, but are interested in rodbuilding.

Mike

FET is not based on profit, but on selling price. You could lose money on every sale and the FET would still be due. It is part of the sale. And, the rod builder doesn't pay it, he simply collects it from the customer and forwards it to the IRS. And... the Sportsfishing Excise Tax is returned to the states for use in their game and fish department, it is not used or put into the general U.S. tax fund. It is a user tax and we (rod builders and fishermen) receive the full benefit. The Fish and Wildlife Service only withholds about 6% for administrative costs - the rest is returned in full to the fishermen via their state fish and game departments.

You are not taxed on teaching rod building nor wrapping a few guides (the FET does not apply to repair work). The tax is levied, at the first point of sale, on new fishing rods.

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

Mike,
The tax is pretty clear and cut and dried. It applies to the manufacture and sale (or barter) of a completed rod. The max tax on a rod is $10, which the customer pays. A whole lot is being made of this. File a quarterly 720 and be done with it. If you haven't sold a rod, list $0 and file anyway. One form filed quarterly hardly constitutes a "blizzard of paperwork" If your accountant isn't familiar with the tax, refer him to this [www.rodbuilding.org]

Mike (Southgate, MI)
If I don't want to, I don't have to and nobody can make me (except my wife) cuz I'm RETIRED!!

That is nice to know Tom, I have always pointed out that I have always had a fishing/hunting license and told a few people that I have met over the years(that have never bought a license) that the money for those licenses goes to a good cause and I am happy/honored to pay it. Haven't missed a year since I was a kid(47 years old now). Now I feel better about paying FET because I do build rods for money, and I do fish, but like I said, my accountant takes care of all 3 of my company's taxes so I can focus on making money without worrying about the (pain) of taxpaying. Now if I could only get paid the same for building rods as I do for my serious work. I'd drop those other companies in a heartbeat, LOL!

I'm not sure what you meant Mike M. because I have never had that feeling. It seems that the information flys freely from the pros to the hobbyists with no problems. Maybe I'm not understanding what you meant.. Nice thread , and I learn something new every time I come here thanks to Tom and the rest of you guys. Thanks.. .............Kyle

Mike M,
The hobby builders probably far outnumber the "professional" builders here. There are builders here that sell a couple hundred rods a year that are just as willing to share information with and help the new builder that will probably never sell a rod. It's about rodbuilders helping rodbuilders and advancing the craft. The purpose of threads like this one is to make sure that builders get the proper info to avoid legal hassles. Nothing more, nothing less!

Mike (Southgate, MI)
If I don't want to, I don't have to and nobody can make me (except my wife) cuz I'm RETIRED!!