Excise Tax

[fishhunter775]

Ok guys not trying to start no trouble so bear with me.I made mention of the fed excise tax in another post and a member got confused so going to try and explain it,thought maybe everyone might like to see how it works.
Ok if someone want to engage in the selling of jigs or tackle in general they need the following to engage in a leagal bussiness.It doesnt matter the amount you make so keep that in mind or money you make.
Federal EIN number
637 Fed Excise tax permit
State sales Tax permit
Ok if your set with these your ready to go ha ha.
The 637 allows you to buy at wholesale prices and be exempt from the 10 percent tax at time of purchase.If you ellect to pay it like buying from Shortys then each quarter you can take a credit from what your due to pay.Example
I buy a box of hooks for say 15.00 if I pay the tax now it is 1.50 added to them.Now if I pour lead on them and charge .10 each them for a total of 100.00 then my tax will be 10.00 less the 1.50 I paid to shortys so I owe 8.50 to Uncle same.
Now the person that bought them decides they want to paint and tye them to sell,well youve changed my finished product so there is tax due and it works like this you sell the 1000 jigs for say .50 cents each you now owe the goverment 50.00 less the 10.00 or 10 percent you paid for them, that has already been paid so you owe 40.00.Easy huh LOL.As long as no further changes are mad to the product then no more excise taxes will be due by anyone else.
If anyone has any question I will be more than glad to try and answer them.Im not a tax expert but will try and help or refer you to the answers.
One last thing if a person were to get caught making or sell tackle without charging the excise tax then there is a heavy I mean real heavy fine plus you will have to pay taxes due plus intrest on it.Now It doesnt make me any differance Im just trying to inlighten anyone that maybe considering doing it for sale.Good luck to anyone starting.

 

[Ron Don]

Well said! I will add that in times like these Uncle Sam is looking for money! So don't be surprised to get audited. Ha and one of those will change ya!

 

[papaperch]

FYI - the law that requires this is the Pittman-Robertson Act. Not 100% sure of the name but was originally passed for firearms ,ammunition and such. Over the years different things were included and enrolled and fishing tackle was one of them.

Northeast Ohio back in the 1950's had a lot of fishing related products manufactured here. While not common knowledge seems more people are aware of the tax here.

My advice to anyone wishing to manufacture and sell fishing related items is to get these licenses before they begin production of any item you plan on selling. When partner and I used to be in tackle business we used to augment our sales by setting up at flea markets.

I never witnessed someone actually being nailed with out a license and engaging in sales. But we got plenty of friendly warnings from other sellers who had seen it happen. Since these guys were not selling anything related to fishing I knew they were not just trying to eliminate competition. Fishhunter is correct by stating every time it changes hands the tax is paid. His examples are spot on. Another caution is that this is a Federal Tax. Be assured that the IRS will get every dime it has coming.

This license is not required to sell your own personal tackle. As in selling your old reels or rods at garage sale or flea market. Just like selling your old car doesn't make you a car dealer. But don't step in any gray areas here. You are either a manufacturer or not. If any doubt ask a CPA that knows their stuff.

 

[Hawnjigs]

A mfg. doesn't have to pass on the 10% FET to their customers as long as the mfg. pays it. I absorb it as a cost of bizness, but its a heavy hit.

Yeah, there are gray area skaters claiming "hobby", but you takes your chances. There might be a $ limit that defines the borderline between mfg and hobbyist, but I don't know what it is.

 

[fishhunter775]

Im like Hawn I absorb it into my products and dont charge the tax outright.When I first got my first audit before getting my tax number approved I ask the question about doing it as a hobby and was told by the IRS man,It doesnt matter if you make 1 jig or 1000 jigs if you sell it you owe for it.You can give em away but not sale them.
There are some perks though guys like,you can actualy buy a boat and have it deducted per year for feild testing.If you keep a journal you can take off each one of your fishing trips as long as your feild testing new colors and products,but be real careful with it ha ha.Also once you become a full time tackle builder heck you wont have the time to fish ha ha

 

[Fatman]

I'm the wise ass that asked LOL. I was thinking, hey cheaper hooks but after seeing that explanation I'll pay the extra LOL. But all the work trying to explain it is appreciated, I got enough problems without getting Uncle Sam looking over my shoulder cause I pour and tie some jigs.

Thanks again for all the info.

Fatman

 

[JSC]

Just a couple of notes to this ... The part of the FET that applies to fishing tackle .. is the Dingle-Johnson Bill ... On testing, developing & etc ... real "Gray" area ... been advised to stay away from that
I don't absorb the 10 % but figure it into the price I sell it for. This is to some, is "Splitting Hairs" .. To Figure the 10% to pay when the amount has been added to the price of the item you use .09091 .. I hope this was not confusing but I had thought of it before I had an agent checking me and she told me with out asking that I had been over paying and took all the invoices back to a certain date and I was given the word by her to take that amount off of the total due on the next FET payment ..

JSC

 

[JSC]

If you billed for $30.00 and the 10% is included in that amount ... yes.

I have known of one or two that would add the 10% to the #30.00 & this would be a different situation.

Hope that helps

(I would not try to take credit for any in the past with out the OK of a FET Agent)

 

[JSC]

The thing is if you paid tax on the 30.00 you would also be paying it on the 10% tax as well ... with the .09091 it discounts the 10%.

 

[JSC]

Don't know how Quick Books would handle it .. Have not used it in several years ... made a data base in FileMaker to keep up with every thing.

 

[AtticaFish]

Ok..... so the Fed Ex. Tax ONLY applies to fishing tackle and firearms stuff??? State tax is exempt on internet sales unless the sale is made inside your state - that is how Ohio works anyway. I would only charge OH State Tax (.07) if the person i sold something to lived in the state of Ohio. Sold to someone outside the state - no state tax.

Reason i am asking...... just got my taxes done for me and my wife. We get ours done by a CPA since my wife works out of the home for a doctors office. I brought up to the CPA 'Tax Lady' (as i call her) that i own a website and am in the process of selling shirts and what not. She said no problem, just get your vendors liscense, charge tax for Ohio purchases and you will be good. Also said i did not even have to worry about claiming income for the business if it stayed under $500 profit for the year - it was considered a hoby.

The Tax Lady also said for those who are making money over EBay to keep books on everything. There is a possible deal where EBay will have to keep complete records and recrd them to the IRS for ALL business done. Just a heads up.

The IRS is an odd customer. I have heard that even if you have more than 2 garage sales a year... by law you are required to report that as income. WTF???

 

[LedHed]

"The IRS is an odd customer. I have heard that even if you have more than 2 garage sales a year... by law you are required to report that as income. WTF???"

Out here you can't sell at a swapmeet (flea market) more than twice a year... You gotta pay tax on used stuff that has been taxed already!

 

[blt]

People would be shocked if they really knew what they were to be paying tax on. I like the "use" tax in some states....mine included. If you buy ANYTHING in another state, bring it home, you owe this tax to your state....unless you paid a state tax in the state you bought it in.

 

[Fatman]

Now I know why I don't do this for extra income!!!!!!!