Excise Tax Question

By Tom Kirkman

Here is a question from Volume 5 - Issue #3 of RodMaker Magazine.

RodMaker Magazine

If I sell a rod for 150 dollars, and never write up a "bill of sale", can I report that I sold the rod for 140 dollars and collected 10% tax on the rod, bringing it to the 150? Should I write up a bill of sale saying exactly this?

I want to get my business license and take advantage of the wholesale pricing that is available. I have a very small operation, no more than 3 rods a month, but don't know anything about taxes on this sort of thing. Where can I read more information about this wonderful tax phenomemon? Thanks! ~ Zag...Via Email

You have made some assumptions that are not correct and can penalize you. Let's take a scenario and walk through it so you might understand how to figure and apply this tax better.

Rods which are sold to the end user and taxed at the rate of 10% of 60% of the total selling price. Rods which are sold for the purpose of resale, are taxed at the rate of 10% of the total sales price. So if we take a rod that you sell to the end user for $150, you would figure 60% as the amount to levye the tax on ($90) and pay 10% of that as your tax ($9). If you sell it to a dealer for the purpose of resale, you would pay a tax of 10% on whatever your price to the dealer was.

How you choose to show these figures on your sales invoices is up to you. Most builders back figure the tax, having buried it in the price given to the customer, paying the $9 we used in this instance out of the $150 charged to the customer. Others might prefer to show the tax on their customer's invoice listing the rod price at $140 and a tax of $8.40 for a total customer price of $148.40. As you can see, there is a slight difference in how much the tax will be according to how you prefer to write your sales receipt to the customer. The IRS is intested in the total selling price. If you bury the tax in the total price, then it is back figured as listed above. If you show it to the customer as a separate item, just remember that your total selling price for reporting purposes would be $140 and not the $148.40 which clearly shows the tax as an add-on.

There is more to the tax and you can obtain a free reprint of the article which I did for the magazine in the September/October 1998 issue by sending an SASE to me at P.O. Box 1322, High Point, NC 27261. This article has been checked by several IRS Excise Tax Specialists and all have told me it is 100% accurate. ~ 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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