Written by: Stephen Zogal, EA
Date: 01/28/2025
When purchasing or selling sport fishing equipment, it’s essential to understand the federal excise tax imposed under Title 26 § 4161 of the U.S. Tax Code. This tax applies to a variety of fishing-related items and is paid by manufacturers, producers, or importers at the time of sale. This article breaks down how the tax works, what items are taxed, and key considerations for businesses in the fishing industry.
What is the Federal Excise Tax on Sport Fishing Equipment? 🏛️
The U.S. government imposes a 10% excise tax on the sale price of many sport fishing products. This tax is designed to generate revenue, which is often allocated to conservation efforts and outdoor recreation programs. The tax is filed using Form 720 (Quarterly Federal Excise Tax Return) but does not require tax deposits in advance.

Who Pays the Tax?
The manufacturer, producer, or importer is responsible for paying the tax when selling the product. If a retailer or wholesaler purchases fishing equipment from a manufacturer, the tax is already included in the price.
The "Second Tax" on Resale (Title 26 § 4162) 🔄
In some cases, a second tax may be imposed when fishing equipment is resold. This happens if:
The manufacturer sells a taxable item to another company.
The purchaser then sells it to a related person (as defined by § 465(b)(3)(C)).
That related person then resells the item to a third party.
📌 Exception: If the constructive sales price rules under § 4216(b) apply, the second tax is not imposed.
📌 Tax Credit: If the second tax is charged, a credit for the tax already paid is available, but proper documentation is required (e.g., copies of invoices or tax records).

Constructive Sales Price & Tax Calculation Confusion 🤯
The constructive sales price rule under I.R.C. § 4216 comes into play when a manufacturer sells an item at an artificially low price to a related entity (such as a subsidiary or controlled distributor). In such cases, the IRS may determine that the tax should be based on fair market value (FMV) rather than the actual sale price.
Key Court Case: Creme Mfg. Co. v. United States (1972) ⚖️
This case clarified that:
✅ Excise tax is based on the actual sale price unless the sale is far below FMV.
✅ The IRS must prove that a sale was not at arm’s length before applying FMV.
✅ The burden of proof falls on the taxpayer if they claim FMV does not apply.
Thus, manufacturers selling at fair, competitive prices to unrelated buyers should not be subject to constructive sales price adjustments.
Filing & Compliance: Avoiding Costly Mistakes 📝
To stay compliant and avoid IRS penalties, manufacturers must:
✔️ File Form 720 quarterly to report excise tax liabilities.
✔️ Maintain clear documentation of tax payments if reselling to related parties.
✔️ Ensure sales are conducted at arm’s length to avoid constructive pricing disputes.
Final Thoughts 💡
The federal excise tax on sport fishing equipment ensures that fishing-related sales contribute to conservation efforts. Manufacturers must carefully track their sales and taxes, particularly in cases involving related parties or resales subject to a second tax. Understanding the $10 cap on rods & poles and the rules around constructive pricing can help businesses avoid unexpected liabilities.
By staying compliant with IRS regulations, fishing manufacturers and retailers can continue to serve anglers nationwide while supporting outdoor recreation initiatives.
Still Confused and Need Help? Spring Tax Advisors can help!
References
IRS Publication 510
Title 26 §416
Title 26 §4162
Revenue Ruling 88-52, 1988-1 CB 356, June 20, 1988
26 U.S. Code § 4216
Rev. Rul. 81-226 Letter Ruling Dated 2.10.1989
Creme Mfg. Co. v. United States, 348 F. Supp. 270 (E.D. Tex. 1972)
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