Here's a question from the Volume 3 - Issue #5 issue of RodMaker magazine:
"I am new to rod building but have been asked by a couple of
fishing buddies to make rods for them. I decided to get a sales ID
number so that I could buy the materials at wholesale price. I want
to know if what I'm planning to do is a mistake. I am not familiar
with running a business and all the tax laws. I want to make some
extra money by selling these rods and hopefully others, but I do
not want to make mistakes with taxes.
When I order materials through a catalog from another state I do
not pay sales tax. When I get a Sales ID when and what taxes do
I owe? If I buy materials and build a rod for myself or a family
member do I owe any tax?
Thank you for any info you can provide."
Billy . . .Brooklyn, NY
I'm glad you are willing to seek advice on the ramifications
of selling custom rods. Doing so will save you a ton of trouble
down the road. I will begin by stating that you really need to
talk to your local State Department of Revenue in order to
determine what is required insofar as sales taxes for your
particular state and county. An IRS excise tax specialist is
the final word on the Sportfishing Excise Tax which is due on
every custom rod sold. Make these people your expert source
for tax information and you will be okay. I'm going to attempt
to answer your questions but will still recommend that you talk
to the aforementioned authorities before embarking on the road
to a custom rod business. As I said, they are the final word
on what is required from you.
A sales ID as you call it, or tax number as other call it,
will allow you to purchse materials at wholesale prices, usually.
It also requires that you file and pay state and county sales tax
at the appropriate amount of each and every rod sold. Sales tax
is charged on the selling price and is not broken down into parts
and labor, unless the sale involved repair work and not a finished
rod. The tax percentage varies from state to state and county to
county so you will want to check with your local state department
Sales of rods made to customers outside of your own state are
usually considered Interstate Commerce and do not require that
sales tax be paid unless your state has some sort of reciprocal
agreement with another state/s. Again, you will have to check
this out with your local revenue office.
The Sportfishing Excise Tax requires you to file quarterly and
pay 10% on 60% of your total rod sales to customers who are
end users of the product. In the event that you sell a rod
or rods to a dealer who in turn is reselling the rods, you must
pay a flat 10% of your selling price.
Of course, any income you derive from your rod business is
considered income and must be reported as such on your income
tax return. Rods which you build for personal use or give
away as gifts are not taxable at this time.
The only thing that would be a mistake would be for you
to engage in selling these rods before making a final
check with your local tax people. I can assure you that
they will be very helpful. ~ Tom Kirkman
If you have any tips or techniques, send them
along! Help out your fellow rodmakers!
~ Publisher, FAOL