So essentially I am trying to understand this is the situation:
Kitsune with Fox shape feat has the item Demon Talon equipped to a stump. Let's say both of their hands, so two Demon Talons. If this individual did this while in Kitsune form, then transformed into a fox via fox shape, would they retain use of the magic item while in fox form?
Under the Polymorph section it says,
When you cast a polymorph spell that changes you into a creature of the animal, dragon, elemental, magical beast, plant, or vermin type, all of your gear melds into your body. Items that provide constant bonuses and do not need to be activated continue to function while melded in this way (with the exception of armor and shield bonuses, which cease to function). Items that require activation cannot be used while you maintain that form. While in such a form, you cannot cast any spells that require material components (unless you have the Eschew Materials or Natural Spell feat), and can only cast spells with somatic or verbal components if the form you choose has the capability to make such movements or speak, such as a dragon. Other polymorph spells might be subject to this restriction as well, if they change you into a form that is unlike your original form (subject to GM discretion). If your new form does not cause your equipment to meld into your form, the equipment resizes to match your new size.
So would the item Demon Talon still work while in fox form?
Best Answer
A kitsune using the feat Fox Shape does not retain the use of his pair of demon talons...
The section Magic on Transmutation on the subschool Polymorph says
For the item (even an attached item and likely any attended item) to have an effect on the assumed form, the item must both provide a non-armor or non-shield bonus and not require activation. (The use of the word that in the emphasized sentence is lone a complementizer making the pair of phrases that follow simultaneously (not independently) modify the subject items. The sentence needs a second that between and and do for a different reading. And I totally agree that rules should be clear without having to go deep on grammar to be understood.)
Thus, while the demon talons don't need to be activated, they also don't grant a bonus, so they are nonfunctional when the fox shape is assumed (and were the talons magicked further to grant enhancement bonuses on attack and damage rolls, that wouldn't help either).
If it's any consolation, unless the kitsune picked a fox shape that was missing both forepaws when he picked the feat Fox Shape (which, I guess, is possible but really weird), the feat's transformation into a fox gives the kitsune all its paws despite his normal form having had the hands tragically (or voluntarily) removed: the fox shape's "appearance is static and cannot be changed each time you assume this form."
...But a house rule allowing retention probably won't unbalance the game
A kitsune who spends 40,000 gp on a pair of demon talons should see if he can convince the GM that the talons, being attached, are no longer gear but just limbs like his hands were. Allowing the kitsune's fox shape to keep the natural attacks granted by the demon talons, on its surface, doesn't strike this GM as particularly unbalancing.