Batf Targetting Custom Gunsmiths

[iainmcphersn]

The new BATF definition of "manufacturing a firearm" is "making any substantive changes to a firearm" according to Michael Bane's blog. Read more about this here.

Edited March 30, 2006 by iainmcphersn

[rubberneck]

I don't see how this can stand up to the legal challenge that is sure to follow. How can one manufacturer a gun that has already been manufactured and registered with the ATF?

This reminds me of the abuse the IRS used to get away with until congress clipped their wings in the late 90's. It appears that the ATF wasn't smart enough to learn from the IRS's mistake. They picked the wrong fight with the wrong people and now they'll have to answer for their actions.

[carinab]

To make an easily understandable analagy, it's like a mechanic getting charged 11% on every car he does an oil change or repair on because the government claims he's building a car. My gunsmith, Mike Caylor, explained to me this new excise tax last month saying he may need to increase his prices if the ATF decide to implement this "decision." I don't think Mike is aware that he could be hit for a tax on every gun he's ever put together. And isn't this double taxation? Isn't the actual factory (Glock, S_I, etc) already paying the 11%?

Edited March 30, 2006 by carinab

[walangkatapat]

I don't see how this can stand up to the legal challenge that is sure to follow. How can one manufacturer a gun that has already been manufactured and registered with the ATF?

Exactly, but once again person(s) or organizations will have to spend $$$$$$ to fight it while government gets a free ride.

[shred]

This could get ugly fast..

Common sense says anybody with $300 in their pocket can replace the slide and barrel on a Glock with one of different caliber and length in about 5 minutes.

Then again, BATFE has never been known for common sense. No doubt they'll claim this is 'substantively changing', but will be nice and let the poor individual slide since they probably didn't do it 50 times.

Carina, currently (or used-to-be) the excise taxes are paid on the serial numbered part. This no doubt irritates the ATF since they only get 11% of $350 when you bring your frame to a gunsmith to build a $2000 race gun on it.

I've heard the same thing from other smiths-- I bet a lot of them will try to switch to only working on 50 guns a year just to avoid this hassle. One really bad thing is if you "make" 51 guns, then you suddenly owe taxes on all 51, and not just the extra 1.

[walangkatapat]

To make an easily understandable analagy, it's like a mechanic getting charged 11% on every car he does an oil change or repair on because the government claims he's building a car. My gunsmith, Mike Caylor, explained to me this new excise tax last month saying he may need to increase his prices if the ATF decide to implement the "decision." I don't think Mike is aware that he could be hit for a tax on every gun he's ever put together.

Aren't excise taxes paid on all frames, receivers whether or not the firearm is a complete build or not?

[EricW]

Can somebody post a link to/ copy of the ruling? I'm searching ATF's site and finding zip.

Thanks.

[Harmon]

if this is true, its the biggest crock of poo ever..you dont charge sales tax for a new car when you get it repainted.

[AikiDale]

if this is true, its the biggest crock of poo ever..you dont charge sales tax for a new car when you get it repainted.

Shhhhhh! Don't give the chicken thieves any more ideas!

[Dave Berryhill]

I've been looking around for more info about this and haven't found any so far. I'm not sure if the ATF is doing anything different other than trying to enforce their interpretation of the law. I looked into this quite a bit last year. They have interpreted manufacturing as "altering or modifying" for some time now so that is nothing new.

Here is an excerpt from the Alcohol and Tobacco Tax & Trade Bureau's (aka "TTB") Excise Tax Reference Guide:

http://www.ttb.gov/fet/feat_reference_guide.htm#4

"D. Gunsmithing vs. Manufacturing. A gunsmith who only does repair or replacement work on an existing firearm will not be a manufacturer for FAET purposes, unless:

o The gunsmith has title to the firearm and his work materially changes the firearm so that a different taxable article results. See Rev. Rulings 58-586, 64-202 and 69-325.

o The customer is the manufacturer for FAET purposes in situations where the gunsmith performs modifications on a firearm at the customer’s direction. The customer would be liable for FAET upon his sale or taxable use of the firearm."

What makes a gunsmith liable for excise tax is title or ownership of the firearm. If the gunsmith only works on customers' guns then the gunsmith is not liable for excise tax. If the gunsmith buys the firearm first, does work on it and then sells it, he is considered a manufacturer and is liable for excise tax. Recently a bill was passed that exempts a gunsmith from excise tax if he "manufacturers" less than 50 firearms per year.

A couple of notes: I'm not sure what is going on with the ATF or if anything has changed other than the recent 50 firearms per year exemption. So far, I haven't seen anything other than the news that was posted here. It would be nice to get some clarification on this.

Excise tax is only charged on complete firearms. Even though the receiver is legally considered a firearm, excise tax is not charged on a bare frame.

Also, when the Dept. of Homeland Security was created the ATF was split. Prior to that it was under the Treasury Department. Now the enforcement and licensing unit, which is now called the Bureau of Alcohol, Tobacco, Firearms and Explosives (BATFE), is part of the Dept. of Justice. The Alcohol and Tobacco Tax & Trade Bureau (TTB) is in charge of tax revenue, including excise tax on firearms, and is part of the Dept. of Treasury.

Somethings never change though. I asked for a written ruling to clarify an excise tax issue last year but still haven't received it yet. I was told by phone that their legal department was working on it but it's been over 6 months since I submitted my request.

[blackdragon]

Dave is right! FET has to be paid. If you assemble all the parts and suddenly you produce a Firearm, FET is due!

Ivan

[benny hill]

ONLY after 50 guns are built.

[blackdragon]

Benny,

Good call! Most custom pistol smiths will do that in 1 year. " You might beat the rap, But you won't beat the ride"

Ivan

[jmorris]

I called the ATF a few years ago, when I wanted to build my own .50 BMG. On top of sending me a free copy of "the book" they sent me a signed letter that ok'ed an individual to build any legal firearm (non-class 3,rifled,boresize,etc. read the book). But, you can't sell it.

[wombat]

But, you can't sell it.

BS

[Carlos]

I called the ATF a few years ago, when I wanted to build my own .50 BMG. On top of sending me a free copy of "the book" they sent me a signed letter that ok'ed an individual to build any legal firearm (non-class 3,rifled,boresize,etc. read the book). But, you can't sell it.

Yes and no.

We are talking about apples and oranges.

1) Individuals. As individuals, you can "make" (i.e - MAKE, not "manufacture") a firearm. See my POST Notice the serial number? No? THat is because there is no serial number. There does not need to be one. I have not "manufactured" anything. I MADE my own firearm from a block of steel. Or more correctly, a cast piece of steel that was not completed. I completed it. I am NOT a manufacturer.

2) Manufacturers: ALL MANUFACTURED FRAMES MUST BE:

A. Serial numbered

B. Reported to BATFE

IF the frames are assembled into completed firearms, THEN there is a 10% excise tax that has to be paid on the full amount of the firearm's value. THAT is why Dave Berryhill wrote above: "Excise tax is only charged on complete firearms. Even though the receiver is legally considered a firearm, excise tax is not charged on a bare frame."

Example:

-stripped AR-15 lower = NO TAX, but you have to do the NICS check.

-barreled upper = NOT a firearm, NO excise tax.

-Fully assembled, test-fired DPMS rifle = FAET TAX of 10% and NICS check.

Now- this last point seems to be where the BATFE has focused its attention and has gone after some gunsmiths.

From what I can tell, here is another example specific to our sport (though please correct me if I am off base here):

-STI builds a complete firearm to sell but has to pay the 10% tax.

-Joe's Custom Pistol Shop "builds" a gun for a customer using all STI parts including an serial numbered STI frame from Brownells - the result being the same gun STI sells - but Joe's never pays the excise tax.

See the problem? It appears that BATFE wants the tax revenue.

This issue has nothing to do with an individual like me who "makes" a firearm for personal use. Wombat - maybe so, but a SAFE rule of thumb for builders is that the gun cannot be built with the intent to ever transfer and the SAFE course of action is to never transfer the gun. Yes- there MIGHT be some technical exceptions. Personally, I own & possess every gun I have ever made and I always will. For everyone: more about the pissing contest regarding sales of firearms that were "made" by an individual but are not "manufactured" guns - including a latter of guidance from BATFE: LINK

http://www.ar15.com/forums/topic.html?b=4&f=51&t=85165

Regards,

D.C. Johnson

Edited April 18, 2006 by Carlos

[mpolans]

I'd go along with what Carlos says. Frankly, the law in this area seems a unclear, particularly since the BATFE advisory letters appear to confuse, or at least, don't distinguish between one who "makes" and one who "manufactures." While it appears that "manufacture" is used in the common, non-legal sense in the advisory letter, assuming such could result in the rapid, unwanted accessorizing of stainless bracelets.

I'd say the safe route would be to hang on to any guns you "make."

If you can't shake the desire to sell a gun you made, don't rely on advice you get in a forum, 'cause it won't help you when you're sportin' blaze orange and standing before a judge. Instead, contact BATFE directly and get them to send you a response in writing. Better yet, get a competent attorney, licensed to practice in your area, to write the letter to BATFE for you and to go over the response to make sure there aren't any ambiguities in either.

Edited April 19, 2006 by mpolans

[cking]

BATF has always stated that the excise tax must get paid, the lower receiver group gets out of it because it could be a replacement part. So if your buying parts assembling guns and selling, even though you are not a manufacture you owe the tax. Been that way for last 15 years.

Now that BATF is under the Dept of Revenue now, somebody probably noticed that all these parts kits guns are skipping the tax. So easiest group to go after is FFL holders plus they are the last stop before the retail owner. Death and Taxes

[CenTX]

If you provide the frame to the gunsmith, does that exempt the gunsmith and put the burden on you?

If the custom smiths must start charging 10% more to cover the FET, it may reduce lead times for custom guns.

Edited April 19, 2006 by CenTX

[Carlos]

Located more info on the debate including a named gunsmith as well as what ATF (now BATFE) will allow a gunsmith to do WITHOUT application of the FET or the apparent 50 gun/yr rule:

LINK or just go to

http://www.homegunsmith.com/cgi-bin/ib3/ik...ST;f=98;t=14287

The gunsmith who is being investigated for possible TAX LIABILITY is reported to be: "Larry Crow, owner of Competitive Edge Gunworks and member of the American Pistolsmith Guild" - anyone know of this person?

Again, we are NOT discussing home builders here. Rather, we are discussing:

BATFE's (now located within the US Department of Justice) NEW interpretation of the FET as it applies to certain gunsmiths (who, by definition, are FFL holders). Carry on.

C.

Edited April 20, 2006 by Carlos

[Dave Berryhill]

...BATFE's (now located within the US Department of Justice) NEW interpretation of the FET as it applies to certain gunsmiths (who, by definition, are FFL holders)...

Once again, this is not a "new" interpretation of the law. The BATFE has used this definition of manufacturing for several years. I believe that what has changed is their enforcement of it. Now that there is a 50 gun per year exemption, the BATFE appears to be going after the missed FET from previous years.

One thing that these reports have not stated is whether Larry Crow/Competitive Edge purchased guns, made the modifications ("manufacturing") and then resold them or did the modifications to customer-supplied guns. The answer to that question is critical. If he is reselling the firearms then he is liable for the FET under the current law. If the BATFE is trying to make him pay FET on work to customer's guns then they have changed their interpretation of the law and have done so without notifying FFL holders. THAT would have a very negative effect on the gunsmithing industry.

Either way, I think the legislature needs to define "manufacturing" (and while they are at it, define "legitimate sporting purpose") and take the ability to define the law away from the BATFE. Law enforcement's job is to enforce the law. The legislature and the court's job is to define and interpret it.

[2alpha]

Like everything else concerning the BATF much confusion and faulty info. It has always been the BATF's rulling that a gunsmith owes 11 percent for every gun he builds from a bare frame. In fact some of the bigger custom houses had to pay tax if they added a certain amount of value to a gun, not sure if that has been enforced lately. The tax is not paid by the manufactor of the frame, it is sold as a replacement part, only if it was sold as a complete gun does the manuf pay the tax. What has changed is a bill passed by congress allowing 50 guns to be built before the tax kicks in. Some think the problems for Larry Crow are retaleration for the bill passing. The BATF has the power to collect taxes for every gun built prior to passage of the bill. All small gunsmiths are in peril if BATF pushes this issue. Ordinary bizz records are required for 5-10 years but BATF records have no time limit they are forever so think of the repercusions to your favorite gunsmith if he has to pay taxes on every gun built from a bare frame since he started bizz. BTW this is not just STI and Caspian frames, all those cloned AR's count too. This is serious shit , if you want to help your gunsmith contact your rep and Senator and let them know how ya feel. You may not see much comment from gunsmiths on this as they are trying to stay under the radar.

[Richie]

So, if you an individual buys a frame kit from STI or Caspian and builds their dream competition gun, but then realizes 6 months later, they have the itch for a new trend and want to get rid of the oone they built, they have to somehow pay the 11% tax on it? Or they just have to keep it?

Sorry for the confusion...