Elk NetworkLeaks in the System

Conservation | April 30, 2020

By J. Mitch King

Is hunting and fishing gear that sells for way less than retail on the Internet robbing fish and wildlife conservation?

Have you ever noticed how cheap fishing lures and reels can be online? Or how about the online price of a dozen arrow shafts compared to what they might cost at Bass Pro? Why are they cheaper online? It’s simple; the companies selling that gear online aren’t paying their share for conservation. Foreign retailers and manufacturers are making money by circumventing the whole system that gives us fish to catch and animals to hunt. And as long as there are online retailers willing to sell you gear for less, the problem is only going to get worse.

First, a little background before we dive into the problem. Here in the U.S., our wildlife managers use the North American Model of Wildlife Conservation as a blueprint to guide their management choices. To fund this management, state agencies need a consistent source of money. Revenue from the sale of hunting and fishing licenses and the excise taxes collected on specific hunting and fishing equipment provide the bulk of agency operating budgets. For example, 78 percent of Colorado Parks and Wildlife’s budget is funded from the combination of hunting and fishing licenses and federal excise taxes placed on ammo, firearms, fishing gear and archery equipment. Great Outdoors Colorado (a program funded by the Colorado Lottery) provides the remaining 12 percent. Not a dime from Colorado’s general fund goes to stewardship of fish and wildlife. The Arizona Game and Fish Department receives no general fund tax dollars, either. Instead, AZGFD relies on those same excise taxes, license dollars and their own state’s lottery funds. The fact that the majority of money paid into the system comes from hunters and anglers isn’t by coincidence.

When professional wildlife management was in its infancy early in the 20th century, management efforts were spotty and sporadic due in large measure to a lack of reliable funding. While some state wildlife agencies were benefiting from the sale of hunting licenses, these license revenues were often diverted and thus unreliable without protection from politically influenced redirection.

In the 1930s this situation began to change when leaders in the hunting community and in the firearms and ammunition industry recognized that if the North American Model was going to flourish, state wildlife agencies needed a more reliable system of funding. Their solution was the Pittman-Robertson Act of 1937 (PR), which created the Wildlife Restoration Fund. That fund was supported by an excise tax paid by the manufacturers or importers of firearms and ammunition. In the 1970s, the PR Act was expanded to place a similar excise tax on pistols and archery equipment (bows, arrows, and accessories attaching to the bow). These excise taxes —11 percent on guns, ammo and archery equipment—go exclusively to fund wildlife restoration and stewardship. Over the 80-plus years since passage of the PR Act, wildlife species across America, game and nongame alike, have rebounded and flourished. Today’s hunters and all of the American public benefit from vibrant wildlife populations.

Recognizing the PR Act’s benefits to wildlife populations, the fishing community emulated this system of funding for fisheries management. The passage of the Dingell-Johnson (DJ) Act of 1950 created the Sport Fish Restoration Fund, placing a 10 percent excise tax on the manufacturers or importers of fishing equipment. Like the PR Act, this fishing equivalent required that revenue from the tax be spent to conserve fisheries. It also prohibited states from redirecting any proceeds from fishing licenses away from the state agency responsible for fisheries management.

The funds collected through excise taxes and hunting and fishing licenses remain the primary and overwhelming source of support for most state fish and wildlife agencies.

“The combination of license and excise tax revenues comprise 70 to 80 percent of the typical state fish and wildlife agency budget,” says Ron Regan, executive director of the Association of Fish and Wildlife Agencies (AFWA).

Funding in the Age of Online Retail

When PR and DJ were enacted, the hunting and angling industries were primarily a U.S.-based chain of production, meaning the manufacturer made the product and sold it to a wholesaler. The wholesaler then sold it to a retailer who then put the product on the shelf and sold it to you. This fairly simple business model made it easy for the federal government to collect excise taxes. Generally speaking, the government collects excise taxes from the manufacturer. The tax itself is computed on the price the manufacturer charges the wholesaler.

Enter the Internet. Until the last 15 years or so, the hunting and angling equipment business model always included a U.S.-based business entity prior to the sale to the consumer. Now, though, consumers can buy directly from a foreign-based manufacturer or distributor via Amazon, eBay, etc. Since the excise tax collection model can only be applied to entities that have a presence in the U.S., the consumer is now responsible for paying the tax. However, it is hardly realistic to expect the IRS to monitor excise tax payments at this micro level. Nor is it likely you had any idea you were supposed to tax yourself when buying foreign-made hunting and fishing gear from Amazon.

Here’s one real-life example: An arrow manufacturer based in the U.S. makes carbon arrows in Vietnam and imports them for sale into America. The manufacturer began noticing a drop in sales and an increase in the traffic of raw materials necessary for manufacture of carbon arrows into China. Digging into this further, company officials discovered that one China-based company was selling similar carbon arrows at a significantly lower price through an internet marketplace provider. According to Amazon sales numbers, the Chinese company shipped 3,200 dozen of one model of arrow in a single month (December 2018) to the U.S. Roughly computed, that means $20,000 in excise taxes went uncollected on just that one model of arrow in one month alone.

Certainly there are cost savings by not having distributor and/or retail mark-up when one buys direct from a manufacturer, but $20,000 per month for wildlife worth?
Similar examples are available in the fishing equipment industry. When comparing identical products, say a Shimano Ultegra Reel ULT2500HGLB, I find that product available from U.S.-based distributors for $150. A quick look for the exact same reel on AliExpress (Alibaba in the U.S.) shows the same reel for $105. As an importer, the U.S. based distributor is assuming the tax responsibility. There is no way that this reel can be priced at $105 unless the foreign company is avoiding the excise tax.

So you got a fishing reel for 30 percent cheaper from China. What’s the big deal? For one, American industries that comply with the excise tax and support conservation are being hung out to dry. Their competitors gain a 10 or 11 percent pricing advantage. In a market where the profit margins are around five percent, this level of competitive disadvantage is untenable.

“The avoidance of excise tax payments through the use of the large internet marketplace providers is challenging the integrity of both the PR and DJ programs—the very foundation of the North American Model for Wildlife Conservation,” says Dan Forster, chief conservation officer for the Archery Trade Association. “Not only does this result in a direct loss of funding support to our state fish and wildlife agencies, it undermines the industry support for the excise tax program. Those who pay the excise tax do so knowing that the tax is applied fairly to the entire industry. When more and more companies identify ways to avoid the tax and then outcompete others who are paying the tax, the overall industry support for the excise tax program begins to unravel.”

Excise tax revenues are, of course, dependent on the state of the overall economy. When people make more money, they tend to spend more money, which means more money flows into agency coffers via excise taxes. But even when the economy is doing well, the temptation to buy the same item for less money is only human nature. What happens when more and more archery and fishing equipment can be purchased directly from overseas manufacturers? You might get a cheaper reel, but does it outweigh the cost to fish and wildlife?

The Fix?

Internet retail is almost certain to grow bigger, not smaller. That means more potential lost revenue for fish and game management. But there are a few ways we can start to plug the leaks.

First, increase awareness. Consumers need to understand why they see similar products at significantly different prices when shopping online through the large internet marketplace providers. How many of those who hunt and fish even know about PR and DJ? If you’re buying gear directly from China, and it costs 20 percent less, chances are that company isn’t paying their share for conservation.

Second, we need to modernize the federal excise tax collection system. The antiquated approach that requires a U.S.-based manufacturer or importer to pay the excise tax is not working with today’s technology. One strategy could engage U.S. Customs. When taxable products enter the U.S. through traditional ports of entry, they are assigned a tax code, which signifies whether or not they have an excise tax attached to them. Currently, U.S. Customs does not collect excise taxes on hunting and fishing equipment, nor do they have a responsibility to ensure that the tax is paid. Modifying the tax code to engage Customs to collect the tax is a possible solution.

Third, let’s address the problem at the point of sale by large internet marketplace providers. This solution would be similar to the recent issue related to collection of state sales taxes. These large internet marketplaces can easily identify products that require an excise tax and they have the capability to add the excise tax to the final sales price. The state sales tax issue was resolved with virtually every state passing legislation that required these marketplaces to collect the sales tax and make periodic payments to the states. A similar solution for the excise tax on hunting and fishing equipment would require federal legislation to compel these internet marketplace providers to be treated as importers and responsible for collecting and paying the excise tax.

Technology will always move faster than bureaucracy, but we need to get a move on and update our excise tax system if we are serious about continuing to provide for the bounty of fish and wildlife we enjoy.

Finally, we need to get serious about alternative future funding sources for fish and wildlife management that distribute the responsibility to care for America’s fish and wildlife more equitably. By using a portion of lottery proceeds, Colorado and Arizona are doing this now.

Citizens of Missouri opted for an even more egalitarian approach in 1976 when they voted to implement a 1⁄8 of one cent sales tax, the revenue from which is ear-marked exclusively for conservation. It has been a spectacular success and currently generates around $107 million annually and makes up around 60 percent of the Missouri Department of Conservation’s budget.

In 1984 and 1986, Arkansas lawmakers tried to pass nearly identical legislation. It failed both times. In 1996, it passed with 50.6 percent of the vote. Just in the first 10 years after that tax passed, it generated $475 million to help conserve everything from elk to critically endangered Ozark hellbenders. Imagine how much better off wildlife could be if the other 48 states got
on board.

Mitch King spent 30 years with the U.S. Fish and Wildlife Service, starting as an entry level biologist working on wetlands issues in the lower Mississippi River Valley. He retired as director of the Mountain-Prairie Region, and currently serves as executive director of Montana’s Outdoor Legacy Foundation.