More good tongue in check but builders need to remember that the excise tax is not based on profit. It is based on the selling price and is required to be collected regardless of whether you make a profit or not.

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Strongly agree Tom. Profit and selling price are Apples and oranges...

Paul

Can somebody clear up for me if the fed tax applies to labor only. For instance, A repair where no new parts were used wouldnt be subject to the tax, Would it?

The Federal Excise Tax only applies to the MANUFACTURE of a fishing rod or tackle item. No new product is created by a repair. There seems to be a little confusion between the Federal Excise Tax and Income Tax.
The FET is NOT based on income or profit. It is based on the selling price (or bartering or whatever) and is due whether a profit was made or you are a hobbyist. Just like Sales Tax, it is paid by the buyer and you pay it when you file a 720

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!!

Thad,

If a sale is made, even at the cost of parts, the tax is due. Whether you make a profit or even if you lose money on the transaction, if a sale is made, the tax is due on the selling price.

So if you build a rod for a friend, and sell it for the cost of the parts, you must charge him 6% of the selling price or $10, whichever is less.

That is what I was trying to say..but I see it was clarified for all.

Thad
Dutchman's Creek Tackle

When you sell a fishing rod, there is no "labor" charge. You are selling a complete item. The tax is based on the selling price of the rod..

On a repair to an existing rod, no excise tax is due. Your state tax department will still expect sales tax on the parts,and some are now collecting on labor as well, but the Federal Excise Tax on Sportsfishing Equipment does not apply to repair work.

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

I have a question. In the article by Tom Kirkman, it indicates that the FET is a 10% charge or $10.00 cap. I saw in Thad's post that there is a 6% charge. What is the correct percentage?
Also if I understand this correctly, I only charge FET on the retail of a custom rod price and then state sales tax is figured into that equasion, then labor charges are added in to a total cost of final sale price. Correct me if i'm wrong.

Chris -

Reread the article and pay particular attention to the section titled ... FIGURING, COLLECTING AND PAYING THE TAX. It will fully explain the 6% versus 10% calculation.

To calculate excise tax, multiple times the ENTIRE rod sale price as a finished item (this includes labor). To calculate sales tax (at least in Florida), multiple the proper rate times the ENTIRE rod sale price as a finished item. Neither of the taxes should be factored in when performing the calculations (this is the case in any state).

For example ... $300 custom rod. Sales tax in my county = 7% ... so $21.00. Federal Excise Tax is 6%, but due to the cap ... $10. So the grand total out the door = $300 + $21 + $10 ... $331.

Jim -

Jim,
No disrespect to you, But i do not see the section you suggested saying anything about 6%. I copied and pasted from the article that section you recommended. I'm not arguing with anyone, I'm simply trying to understand this and i may be making it harder than it should be.

(This is copied and pasted from Tom Kirkmans article)
FIGURING, COLLECTING AND PAYING THE TAX

The custom rod builder finds him or herself in a somewhat odd situation with regards to the excise tax. Most manufacturers do not sell direct to the end user, instead they sell to a jobber or distributor. Thus, the selling price at that point is considerable lower than it will ultimately be at the retail level. When a custom rod builder sells to the end user, however, the selling price is immediately at the retail level and the tax is considerably higher, dollar wise, than it would be had the rod been sold at what is considered a wholesale or jobber price.

Thus, the Internal Revenue Service has made an allowance in the amount of the selling price which the custom builder and his customer is liable for. This is intended to more closely approximate what the price and the tax would be if sold at the wholesale or jobber level. Such a price adjustment is known as a "Constructive Sale Price" and can be found under IRS ruling 26 CFR 48.4216(9)-2:Constructive Sales Price, basic rules. There is also a revision under: Rul. 81-226. Among custom builders, this is often referred to as the "60% rule."

Here's how it works - lets say you sell a custom rod to your customer for $300. Instead of figuring a 10% tax of $30, you would create a Constructive Sale Price by multiplying $300 by 60% (300 x .60), which is $180. The tax (10%) is now due on that amount ($180). Your customer would be charged $300 for the rod, $18 for the excise tax, and any applicable sales taxes your state or county impose.

You may only take advantage of a Constructive Sale Price when selling to the end user. If you sell a rod to a reseller, someone who then sells the rod to another reseller or the end user, you must pay the 10% tax on your full selling price. Let's take a rod that you sell to a fishing tackle store for $150 and which they intend to sell to one of their customers. Your tax liability would be 10% of the full $150 (.10 x 150) which is $15. (The shop or store has now fulfilled their tax obligation and no further collection or payment by them upon selling the rod to a customer is required.)

In the section above it has and i quote " here's how it works" indicates that 10 % of a $ 300.00 dollar purchase 10% of that amount is $ 18.00 is for the FET tax.

Please dont beat me up to bad, I can be slow at things sometimes.

Chris, if you look at it, selling to an end user becomes 6% as it is 10% of the constructive sale price (60%). So if you take 10% of 60% of an item you arive at an overall 6%, keeping in mind the cap is at $10.

Let's use the same $300 example as previously to show how the same results are derived:

300 * .60 = 180 *.10 = $18 = 10% of 60% of total price
300 * .06 = 18 = 6% of total price

The FET due for the above rod would be $10 as it is capped at that point however.

They both reach the same result, just one method is a bit quicker for calculations. That is all.

Chris Carrigan Wrote:
-------------------------------------------------------
> Among custom builders, this is often
> referred to as the "60% rule."
>
> Here's how it works - lets say you sell a custom
> rod to your customer for $300. Instead of figuring
> a 10% tax of $30, you would create a Constructive
> Sale Price by multiplying $300 by 60% (300 x .60),
> which is $180. The tax (10%) is now due on that
> amount ($180). Your customer would be charged $300
> for the rod, $18 for the excise tax, and any
> applicable sales taxes your state or county
> impose.

60% of 10% is ... 6%. It is a shorter way than 10% of the total times 60% of that number.

Jim And Sean ,
Im on the same page now. For some reason the 10% kept popping out when i simply over looked the 60 % in the equasion. Thanks for breaking it down for easier understanding.

Chris,

You do not have any "labor" charges when building and selling a rod. Things are not broken down into parts and labor. When you buy a shop vac, or a car, or a sandwich, do you see your invoice listing separate parts and labor charges? Of course not - you only see a single selling price and this is what you should be showing when you sell a custom rod.

The excise tax is figured on the selling price. With the constructive sales prices noted above from my article, this means that if you sell to the end user you are to collect 6% or $10, whichever is less. If you sell to a reseller, you collect 10% or $10, whichever is less.

State sales tax is also figured on the total selling price. Again, on a manufactured item there is no such thing as "parts and labor." Those separate charges only come into play when doing repair work.

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Tom,

Thank you for your info. It is greatly appreciated. I also thank you for all the hard work you do. This site is a work of art.

I'm glad we could be of help.

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

Good info. Thanks Tom!



Edited 1 time(s). Last edit at 09/02/2009 09:57PM by Kyle Robinson.