[Spin Casting]

Recently I have had a lot of questions about Federal Excise Tax on fishing lures. Here is a link that will answer some of the questions.

http://federalasst.fws.gov/sfr/fasfr.html

Chuck Vanover
Tight Line Anglers Products
Ph. 440-277-1511
Fax 440-277-9152

[Bountiful Waters]

In a nutshell, what does this mean to small time guys who sell a few baits on the side?

[Spin Casting]

A tax answer in a nutshell?

I don't know the answer to your question, that would be better directed to an accountant.

I can tell you that as a manufacturer we are required to pay Federal Excise Tax on our sales of products that we manufacture. This is why we add the 10% tax on to the invoice. Unless the company that we are making product for has an approved and current Form 637 on file in our office. This Letter Of Registration allows for purchasing articles tax-free and you are required to give your supplier a certificate specifying that your purchase are for further manufacture. The tax will then be paid each quarter by the company or persons that hold the registration.

I don't remember if there is a fee for registration, it's just an application to submit to get the registration.

I hope this has been some help.

Chuck Vanover
Tight Line Anglers Products
Ph. 440-277-1511
Fax 440-277-9152

[reeves]

It is confusing but my interpretation of the nutshell is that you are obligated to pay the tax if you are manufacturing and completing tackle for sale. Example would be: If I cast 100 spinnerbait bodies and sell them to Mr. Smith and he paints them and turns around and sells them to Mr. Jones who then hangs blades and skirts on them and puts them up for sale, it is Mr. Jones who is liable for paying the 10% tax on those baits.

It is tough to answer Bountiful Waters question in less than an evasive way. First of all, are you registered or just a hobbyist? If you are registered, then YES, you would be obligated to pay the tax. If you are merely a hobbyist and selling some of your buddies some baits here and there, then you are just flying under the radar and should hope they never discover you.

Bottom line! If it were me, I wouldn't worry about it unless I got too big and then I had better get legal real quick. It would hurt to have to pay retroactive taxes and fines, just not worth it. And that's my 2 cents on this issue. Actually my wife has the accounting degree and handles all this type stuff, I think she might even understand some of it. If you have any other questions, I can direct them to her for clarification.

[Bountiful Waters]

Good info guys. If the tax is paid to the origional supplier, I do not see the need to register. I know that makes too much sense and I will probably have to register, regardless of how I see it. Does LC and Barlows, etc.. charge this tax to the buyer?

[Jonah]

No matter how small your company is, if you are advertising baits for sale on this site or anywhere else, your best bet is to pay the tax. You will not be happy if/when you get a letter from IRS. The fine for not complying is not a small one. Contact IRS and get Form 720. The tax is paid quarterly. Add the tax into the price of your product. Good fishing!

[Mags]

I am a little confused by this also. Example; I bought 2000 hooks from Shortys and paid the 10% excise tax to Shortys. I haven't applied for an exemption. If I had an exemption I believe it means Shortys wouldn't charge me the tax and I would pay the tax directly to the IRS. I am putting some lead on the hooks and am then re-selling them. Do I also pay the tax on the re-sale, since it is now a different product? My understanding (and I haven't yet read Form 720. I am going there next) was that the tax applied to the first sale of a product, which is why Shorty's charges it, unless you have the exemption. But since the hook is now a jig and I'm the manufacturer is it still considered the first sale. Very confusing.

[Jonah]

Mags- In your case, you will still have to pay an additional 10% on the jigs you're selling. They call it a remanufactured product. Now, if someone buys your jig, adds something to it and they resell it, they will also have to pay the 10%. IRS is covering their donkey so there aren't any loopholes. They want all the money they can get. I know it doesn't seem fair, but that's how it goes. Here's the funny part. Depending on what IRS agent you get, they might not even know the Form 720 exists. When I called to get the form sent to me, the agent said it didn't exist. When I asked for her name and a letter stating that, she transferred me to someone who knew what I was talking about.

[Spin Casting]

OK here goes,

In a perfect world every one involved has a Form 637 letter of registration.

The Manufacture sells tax free to Mr. Smith and he paints them and turns around and sells them to Mr. Jones tax free, who then hangs blades and skirts on them and puts them up for sale, it is Mr. Jones who is liable for paying the 10% tax. (On his sale price.) In the tax Quarter the baits were sold.

In this case Mr. Jones doesn't have a 637.

The Manufacture sells tax free to Mr. Smith and he paints them and turns around and sells them to Mr. Jones, who then hangs blades and skirts on them and puts them up for sale, it is Mr. Smith who is liable for paying the 10% tax. (On his sale price.) Because he has a form 637 and has a tax liability.

Mr. Jones still has a excise tax liability for the difference in what he bought them for, and his sale price. Because he further manufactured on the baits.

I would suggest talking to an accountant or the IRS, I'm not a tax professional.

I hope this didn't make more confusion,

Chuck Vanover
Tight Line Anglers Products
Ph. 440-277-1511
Fax 440-277-9152

[reeves]

Very well said Chuck, and thanks for keeping Mr. Jones and Mr. Smith in the loop.

Mags, Shorty's charged you the 10% tax because you did not have a 637 form. To them, you are the end-user of the hooks you purchased. This insures the IRS that tax will be paid on them. Had you the 637 form, they would not charge you and you would be liable to pay the tax, unless you continue to manugacture on them and resell to someone else. At that point of sale, it is your responsibility to ask your customer if he is registered. If he is, you charge no tax and if he isn't you have to charge him. Everything crystal cloudy clear so far?

Through all these scenarios, one can see where the IRS is most likely being paid numerous times on the same bait. It is ok for them to double dip, but don't you try it.