Here's a question from the March/April 2000 issue of RodMaker magazine:
"I understand that Federal Excise Tax is due on any custom made
fishing rod which I make and sell. I am wondering if it is also
due on repair work, or on rods which I partially assemble for
other home hobbyists. Sometimes they purchase components from
me but ask me to build the handle or mount a grip. What should
I do in these instances? Thanks for your help. . . Matt, Louisville, KY
"You are correct in stating that the tax is due on any
custom rods you make and sell. Repair work is another matter.
Remember that the tax is levied on manufactured rods. When you
build a rod, you start with a blank and components, which you
either made or that were previously manufactured, and end up
with a fishing rod, an item you did not have when you started.
Under that basis, you have manufactured a rod and are liable for
the tax on the rod when it is sold. When you repair a rod, you
are starting with a rod, not a bunch of components and a blank
and ending up with the same. In that regard, no excise tax is due
on repair work. (State sales tax is another matter and I suggest you
contact your State Department of Revenue for the correct amount and
method for your respective State.)
The second part of your question requires a bit more scrutiny and
is not as cut and dried. According to the way the law is written,
a rod blank with only a handle or grip installed is not a fishing
rod, at least not until the guides and a top have been added.
Technically speaking, no tax is due on such a transaction, provided
the component parts were taxed at the original first point of
sale. If the rod is then completed by your customer, but not sold,
no tax is due. Should your customer complete the rod and sell it,
however, the tax would be then due on his or her selling price.
You must be careful here. I know some builders have tried to evade
the tax by completing a rod for a customer, sans the tip-top, and
then instructing him or her on how to install it after the sale.
By claiming that a rod without a top is not yet a rod, they hope
to escape any tax liability on it. Let's be honest here, such
a method is a blatant attempt to defraud the Government, and
the IRS has every right to punish those who try such a ruse. Your
case is a bit different and would appear legitimate insofar as how
you have presented it to me. I would still advise you to consult
the IRS, (Make sure you speak to one of their excise tax specialists.)
and pose the question to them. During the construction of a rod,
there comes a time when it ceases to be just a bunch of component
parts and becomes an actual rod. You and your resident excise tax
person need to determine when that point is reached. In all honesty,
your situation is one of the very few where the excise tax code is
not 100% clear.
For more information on the Federal Sportfishing Excise Tax, please
consult the September/October 1998 issue of Rodmaker for a more
complete and detailed analysis of the tax. ~ Tom Kirkman
If you have any tips or techniques, send them
along! Help out your fellow rodmakers!
~ Publisher, FAOL