Custom Rod Taxes

By Tom Kirkman

Here's a question from the Volume 3 - Issue #5 issue of RodMaker magazine:

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 of revenue.

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

Publishers note:

If you have any tips or techniques, send them along! Help out your fellow rodmakers! ~ Publisher, FAOL

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