I hope this isn't one of those 'we've discussed this a thousand times already'...

If I order a custom rifle from an out of state gun maker, am I required to pay taxes for it?
Would the answer be different if it weren't a custom ordered rifle?

I have purchased and sold any number of guns out of state and in-state and never collected or paid sales tax on any of them and don't believe I'm supposed to! I don't know why a custom gun should be any different.

quote:

Originally posted by bluefin:
I hope this isn't one of those 'we've discussed this a thousand times already'...

If I order a custom rifle from an out of state gun maker, am I required to pay taxes for it?
Would the answer be different if it weren't a custom ordered rifle?

Not sure about Texas but in Kaliforniastan you'd be paying sales tax to the FFL who retailed it to you. The maker would not collect the sales tax.

Would the federal excise tax (FET) come into play? That is what's written on the receipt.

quote:

Originally posted by bluefin:
Would the federal excise tax (FET) come into play? That is what's written on the receipt.

FET is charged to the makers by the feds and has nothing to do with your local "Sales & Use Tax". Any gun maker who manufactures a new receiver must pay a tax on each receiver produced. Your gunmaker has to pay that tax so he's charging it to you just like your dealer would charge you sales tax. Normal stuff.

Last time I ran a business sales taxes were only collect if the customer received the item in the same state. Out of state shipments were tax free.

Fed excise tax are collected on newly manufactured items the first time they are sold either to the distributor or the retail customer, and are not collected on rebuilds or repairs.

Manufacturer sells item to distributor and charges excise tax listed as a line item in receipt. Distributor sells item to retailer, excise tax is not listed on receipt but is included in cost. Retailer sells item to public, Excise tax not charged directly but customer ends up paying it through mark up.

ie Dakota arms = excise tax
Rebuilt or fully reworked M98 = no excise tax

Great examples. Thanks for explaining it.

quote:

Originally posted by bluefin:
Great examples. Thanks for explaining it.

They explained it wrong though.

Technically, you should be paying taxes on ANY purchase you make out of State and be reporting it on your taxes. You also should be reporting any sales with profits or losses on your taxes.

So while taxes are not collected on items purchased out of State you are indeed suppose to be paying those taxes wether it is a toaster or a custom rifle.

Do most people follow the law in this case? Probably not.

I may be misinformed here but if the gunmaker exceeds his 49 gun limit in one year he is required to pay the exise tax on all of the guns produced. There is some confusion on whether or not he is required to have a manufacturers license or not. The exclusion of the fed tax applies to ALL rifles made in excess of 49. If he makes 49, no tax, if he makes 50, all 50 are taxed.

I just read in some literature from the custom gun makers guild that if you supply the action no 11% excise tax. If the gun maker supplies the action then there is a 11% excise tax.

Jim,
It's a little gray as far as what constitutes 'producing'. If you rebarrel an existing rifle, restock it, and basically 'customize' it, does that count for one? Or do you have to start with a virgin receiver in order for it to count towards your 49 a year??? Or does it have to do with who owns it? If you own the rifle or action, customize it, then offer it for sale, there's 'ONE', if you do the same thing to a customer's rifle, that doesn't count towards your 49 rifles, but the customer has 48 left before HE's responsible for the FET.

quote:

if you supply the action

EVERY customer does this.... RIGHT.

quote:

If I order a custom rifle from an out of state gun maker, am I required to pay taxes for it?

Bluefin:

Specific to Texas, the answer is yes. The tax on the receipt is the FET, which is separate and distinct from Texas Sales & Use Tax. If you order a rifle from out of state, no, the seller isn't going to collect sales tax from you. You don't owe tax to his state as you are not a resident, and no out of state business has a responsibility to collect Texas sales tax. However, YOU have a legal obligation to pay the Texas Sales & Use Tax. You're required to obtain a temporary Sales & Use tax permit from the Comptroller's office, and pay the tax due on the purchase price, at your full local rate. Believe it or not, the law requires that you do so, whether it's an expensive custom rifle, or a shirt mail ordered from L. L. Bean.

How many Texas residents actually do this? How many even know the law exists? Who knows? However, I know of a few that have bought very expensive firearms (thousands in sales taxes) out of state, and didn't have a clue they'd broken any laws until the Attorney General's office caught up with them. They trade information from sales tax audits with other states. The offense can be criminal.

quote:

Would the answer be different if it weren't a custom ordered rifle?

No.
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"Serious rifles have two barrels, everything else just burns gunpowder."

I think that Bluefin has been charged the 11% Federal Excise Tax on sporting goods and he is questioning this tax.

The one-time FET should have been collected when the manufacturer of the action sold the action. That tax should NEVER be paid again, ever.

What complicates things is the question of how much must a customizer do to an action to have created a new "sporting good" on which additional FET should be charged. As I understand it, the Treasury Department has arbitrarily adopted the number of 50 as the number of customized firearms that makes a gunsmith a manufacturer. Thus, if you order a custom rifle from a gunsmith who makes in excess of 50 rifles per year, he is obligated to charge FET on that portion of the rifle on which FET has not previously been collected. In most cases, the smith does not wish to go to the trouble to break out the previously paid taxes on the action since it involves explaining something unexplainable to the tax collectors, so the smith simply charges FET on the whole thing. If the action cost $400 (even though it might have been sold by the manufacturer for $200 and the taxes of $22 paid at that time), then you're going to pay an extra $44 for your gun that you really should not have had to pay.

But look at it this way: The tax goes into the Pittman-Robinson fund for wildlife research and conservation, a fund that is largely responsible for the bounty of huntable species we have avaialble today.

By the way: The brouhaha a year or so ago about Congressional "earmarks" and how bad they are -- well, remember the toy arrow exemption that was all over the news? The one that the talking heads kept pointing to as an absurd waste of tax dollars? The truth is that the arrow manufacturer (in Oregon, I think) made both "real" arrows for bowhunters and toy arrows for kid stores. The Treasury Department was too stupid to tell the difference and was charging an 11% excise tax on the toys. The arrow maker's competitors (from China) who made no "real" arrows were not being charged the 11% excize tax, thus ruining the U.S. company's competitive position. So, what the horrible "earmark" did was to tell the Treasury not to charge excise taxes on arrows with rubber tips sold for toys, even if they came out of the same machine in the same factory as the real arrows. The "earmark" made good common sense and helped a domestic producer compete with China. So be careful what you say about "earmarks".

quote:

Originally posted by GeoffM24:

quote:

Originally posted by bluefin:
Great examples. Thanks for explaining it.

They explained it wrong though.

Technically, you should be paying taxes on ANY purchase you make out of State and be reporting it on your taxes. You also should be reporting any sales with profits or losses on your taxes.

So while taxes are not collected on items purchased out of State you are indeed suppose to be paying those taxes wether it is a toaster or a custom rifle.

Do most people follow the law in this case? Probably not.

No we didn't
The original post did not state what type of taxes he was asking about.
You would be correct if the person ordering a rifle was in the business of reselling the rifle But if this is for personal use. Sales tax is the responsibility of the retailer and can be passed along to the consumer as long as the tax is a line item on the receipt and as long as they purchased the rifle through a retailer. If they are in the business of selling rifles and purchase one for personal use then they are required to pay a use tax.

quote:

Originally posted by kcstott:

quote:

Originally posted by GeoffM24:

quote:

Originally posted by bluefin:
Great examples. Thanks for explaining it.

They explained it wrong though.

Technically, you should be paying taxes on ANY purchase you make out of State and be reporting it on your taxes. You also should be reporting any sales with profits or losses on your taxes.

So while taxes are not collected on items purchased out of State you are indeed suppose to be paying those taxes wether it is a toaster or a custom rifle.

Do most people follow the law in this case? Probably not.

No we didn't
The original post did not state what type of taxes he was asking about.
You would be correct if the person ordering a rifle was in the business of reselling the rifle But if this is for personal use. Sales tax is the responsibility of the retailer and can be passed along to the consumer as long as the tax is a line item on the receipt and as long as they purchased the rifle through a retailer. If they are in the business of selling rifles and purchase one for personal use then they are required to pay a use tax.

No. He's right. You're not understanding the law correctly.

Sales tax is NOT the responsibility of the retailer when a sale is made out of state. In that circumstance the retailer has no duty, nor any authority, to collect it. Further, you're confusing this issue with that of a sales tax permit holder withdrawing an exempt purchase for personal use, which is not what we're discussing here.

Generally, sales (use) tax liability on out of state retail purchases, including those over the internet, is the SOLE responsibility of the BUYER, and is due at the full rate levied in the jurisdiction in which the buyer is domiciled. To my knowledge, every state that has a sales tax (not all do) has that rule. That's the law in Texas. It's also the law in your state of California.

From the Board of Equalization website:

quote:

California Use Tax Information (Versión en español)

Many smart shoppers can find bargains online, but don't realize they can incur a tax bill in the process. California law requires tax on in-state purchases, and also requires tax on items purchased out-of-state for use in California.

Tax collected by the retailer here in California is called sales tax, and the retailer is responsible for reporting and paying the tax to the state. When an out-of-state or online retailer doesn't collect the tax for an item delivered to California, the purchaser may owe "use tax," which is simply a tax on the use, storage, or consumption of personal property in California. Items that are exempt from sales tax are exempt from use tax as well. Use tax liabilities are often created by internet or mail order purchases with out-of-state retailers not required to collect the tax. Be sure to review your receipts for internet and other out-of-state purchases to determine if tax was charged.

The use tax, which was created in July 1935, is a companion to California's sales tax that is designed to level the playing field between in-state retailers who are required to collect tax, and some out-of-state retailers who are not. Use tax, just like sales tax, goes to fund state and local services throughout California.

If you are not required to have a seller’s permit and you have not already paid all use tax due to the Board of Equalization as described below, the easiest way to report and pay the use tax is on your California state income tax return. Follow the instructions included with your income tax return. Complete the worksheet included in those instructions to determine the amount of your use tax liability. For questions on whether a purchase is taxable read the Use Tax FAQ, or call our Information Center at 800-400-7115 or TTY/TDD 800-735-2929.

Been the law for a real long time in your state. Same here in Texas. Yes, most folks are probably ignorant of the law in this case. That doesn't change the fact that if the numbers get big enough, the failure of the buyer to report and pay over the tax can constitute criminal tax fraud. I imagine criminal prosecution is rare for this offense, but I can think of one guy in particular that's doing time for exactly that. Like I said in my previous post, I know of folks who've bought expensive guns, jewelry, art, etc. out of state, didn't file the use tax return, and got caught. That's the result of the states trading data from sales tax audits. Given low compliance with these laws, as the current economic crunch worsens I wouldn't be surprised if enforcement in this area increases. It's asource of revenue from laws that have been on the books for decades. No new laws or tax increases needed.
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"Serious rifles have two barrels, everything else just burns gunpowder."

NItro:

You are, of course, correct about what state law says.

What is unsaid is that state law is an unenforceable and unconstitutional restriction on interstate commerce. A state simply cannot legally levy a tax on a trasaction which takes place outside of its borders.

A state can argue that it is previledged to levy a tax on goods that are brought inside its borders for use, but the tax has to be on the USE, not on the goods. Otherwise, if a Californian were to take a job in Texas and move his worldly possessions here, he would be due to pay sales tax on everything he owned, even if it had been taxed originally at the point of sale.

Internet (previously called "mail order") commerce has become huge. The amount of sales tax revenues that are being lost to states are also huge. If there were a way (and believe me, states have tried everything imaginable) to legally collect some of these forgone revenues, then states would be doing so.

Bottom line: Goods purchased in one state and shipped to another state always legally avoid sales taxes unless there is a corresponding use tax that can be enforceably levied.

FET is an entirely different matter. It applies to all domestically-produced covered sporting goods and is levied at the manufacturer's, and I assume that importers of foreign-produced sporting goods must pay it as part of their importing process.

I stand corrected And guilty of tax evasion