I had one gentleman from the IRS excise office challenge me on building a rod for yourself. He said that simply building a rod incurred the tax liability. I challenged him with the actual wording from the IRS - "..upon first point of sale."

The argument went up the chain and he came back a week later and said I was right. The language is what it is. If there is no sale, there is no tax liability. However, if there is any exchange of other goods, services, value, etc., that is considered a "sale" and the tax liability is in play. If you build a rod for yourself or simply give it away, and receiving nothing of value in return, there is no tax due.

The advertising benefit of giving a rod to a local TU group is something a gray area. The IRS would have to prove that you did indeed receive some advertising value and then put a value on that. I don't think they could make a good case, although some agents might try.

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

Tom Kirkman Wrote:
-------------------------------------------------------
> I had one gentleman from the IRS excise office
> challenge me on building a rod for yourself. He
> said that simply building a rod incurred the tax
> liability. I challenged him with the actual
> wording from the IRS - "..upon first point of
> sale."
>
> The argument went up the chain and he came back a
> week later and said I was right. The language is
> what it is. If there is no sale, there is no tax
> liability. However, if there is any exchange of
> other goods, services, value, etc., that is
> considered a "sale" and the tax liability is in
> play. If you build a rod for yourself or simply
> give it away, and receiving nothing of value in
> return, there is no tax due.
>
> The advertising benefit of giving a rod to a local
> TU group is something a gray area. The IRS would
> have to prove that you did indeed receive some
> advertising value and then put a value on that. I
> don't think they could make a good case, although
> some agents might try.
>
> ................


Technically if you’re being acknowledged as a do or you’ve received consideration for the rod = payment. If you’re trying to run a legitimate business, I’d pay it. What’s another $10?

If it’s that big a deal most organizations would gladly pay the $10 tax to receive a donation of that value.

David,
I would think that you would have to check the IRS guide lines, but if you build the rod and give it away, you are technically not selling it or, in reality you are selling it for $0.00. I would think that the tax on a $0.00 sale would be 0, but the IRS needs to confirm it.

I really don't know if there is a tax involved or not, since the sale price is $0.00

Someone else who knows the tax laws would have to answer the question.

According to my CPA, and using the double entry accounting method, you should record the donations as an advertising expense and pay the excise tax. You also (at least in Texas) have to pay use tax on anything you didn't originally pay taxes on that you don't end up collecting sales tax on. So, here's how that would look.

Inventory....................................$170.00
Cash....................................................$170.00
(Purchase of components)

Advertising expense.................$193.05
Inventory..............................................$170.00
Excise tax payable..................................10.00
Use tax payable......................................13.05
(Rod donation)

Essentially, there is no such thing as altruism for businesses. If you make a donation, it's considered advertisement.

Also, to help you guys out, if you sell a rod for more than $166.67, you just pay the $10. That's where the 10% caps out.

Edited to correct my math



Edited 3 time(s). Last edit at 04/10/2018 08:11AM by Seth Johnson.

Tom, is sales tax figured on the sale price or the constructive sale price?

Thanks for all this info and that article. Very very helpful!