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View Full Version : Is An FFL Required to Collect Sales Tax For Out-of-State Purchases?


Dr. EBR
04-01-2005, 9:42 AM
Say if I win an auction for a firearm from an out-of-state seller, I pay the guy and he doesn't collect sales tax since it's an interstate transaction. It is then shipped to an FFL in CA who then processes all the paperwork. Of course there's an FFL fee, but is he also required to collect sales tax on the cost of the original purchase?

icormba
04-01-2005, 9:57 AM
this is one of those seen that done that posts that's been discused before...
Simple answer is yes, they can collect it.
BUT, I don't think they MUST collect it as they are providing a service & a service only.

I think it's up to you to pay your "use" tax at the end of the tax year.

I know that the 3 FFL's I have used do NOT collect it... but none of these has a gunstore "storefront".

What I always wondered is, how does the FFL know how much it cost you to base the amount of tax to collect?

bwiese
04-01-2005, 10:05 AM
Any FFL who DOESN'T collect sales tax for this type of firearm sales is very stupid and is clearly not really a businessman.

[And, if sales tax is somehow not charged, then buyer is still liable for equivalent amount of use tax. In theory, one is supposed to pay use tax on any items purchased out of state & which no sales tax was collected. The Calif. 540 state tax form now includes a space where (under penalty of perjury!) individuals are supposed to attest to the dollar amount of untaxed items they've 'imported' and from which tax can be captured.

A full audit from Franchise Tax Board could involve going thru your credit card records, etc. looking for out of state purchases. (New York state is already doing that for out of state tobacco purchases: they've subpoenaed credit card records for New Yorkers and are dunning those who've purchased/imported discount tobacco.) ]

I think ANY tax consultant will tell you that the 'nexus' of these transactions are actually in CA because the transaction could not legally happen directly between you and seller. The fact you paid $$ to the out-of-state seller is immaterial and would just be seen as an artifice, or irrelevant at best. Because an FFL within CA is required for the transfer/sale to be legal, the concept that "the FFL is just providing a transfer service" would not hold water legally - esp since the FFL is gonna have to enter that gun, at least temporarily, into his inventory, and of course it would be logged in his 'bound book'.

An FFL who doesn't collect sales tax for these types of transactions may not initially get hit by state Board of Equalization, but if that turns out to be a substantial portion of his business over time it really might raise a red flag - with consequent charging him for back taxes, fees and accumulated interest based on the estimated value of the firearms sold in this manner if no detailed accounting were available. (Of course, the 4473/ DROS paperwork will effectively testify against him that these sales/transfers did happen.)

And artificially undervaluing items by significant amounts to reduce sales tax load can be considered fraudulent.

icormba wrote:
i know that the 3 FFL's I have used do NOT collect it... but none of these has a gunstore "storefront"

Presence/absence of storefront is absolutely irrelevant. It's still a business selling things. These guys must not be too bright, or are hoping against hope that they fall under the radar (there is a chance). They must have some kind of biz licenses, zoning, etc. to retain their FFL, though, so they ultimately will have some exposure to state tax folks.

What I always wondered is, how
does the FFL know how much it cost you to base the amount of tax to collect?

For his protection, he's gotta collect a reasonable amount for the fair market value of the gun; condition/age/resale value, etc. are allowed to be considered. He can't say, "OK, we'll value this 95% Sig 226 at $110," and you end up paying only $8+ in sales tax. But that gun could legitmately be valued at $325. Since the FFL has probably sold common gun types several times before, if audited, other sales could be used as guidance - or pricing of other similar sales in region from other dealers could be used. If he's audited and had no sales paperwork he could have the bad luck that everything new is regarded as sold at MSRP from factory catalogs - and would have to spend time + tax lawyer $$ fighting these valuations.

Bill Wiese
San Jose

icormba
04-01-2005, 12:26 PM
Originally posted by bwiese:
Any FFL who DOESN'T collect sales tax for this type of firearm sales is very stupid and is clearly not really a businessman.
Bill Wiese
San Jose

so basically your calling legitimate businessmen stupid? These guys have been in business for years and all of a sudden they are stupid?



And, if sales tax is somehow not charged, then buyer is still liable for equivalent amount of use tax. In theory, one is supposed to pay use tax on any items purchased out of state & which no sales tax was collected. The Calif. 540 state tax form now includes a space where (under penalty of perjury!) individuals are supposed to attest to the dollar amount of untaxed items they've 'imported' and from which tax can be captured.
Bill Wiese
San Jose

No argument about the purchaser paying a use tax at the end of the year.


A full audit from Franchise Tax Board could involve going thru your credit card records, etc. looking for out of state purchases. (New York state is already doing that for out of state tobacco purchases: they've subpoenaed credit card records for New Yorkers and are dunning those who've purchased/imported discount tobacco.) ]
Bill Wiese
San Jose

Thankfully most online transactions with guns are handled by money order, many do not accept credit cards.


I think ANY tax consultant will tell you that the 'nexus' of these transactions are actually in CA because the transaction could not legally happen directly between you and seller. The fact you paid $$ to the out-of-state seller is immaterial and would just be seen as an artifice, or irrelevant at best. Because an FFL within CA is required for the transfer/sale to be legal, the concept that "the FFL is just providing a transfer service" would not hold water legally - esp since the FFL is gonna have to enter that gun, at least temporarily, into his inventory, and of course it would be logged in his 'bound book'.
Bill Wiese
San Jose

by this meaning, the Ca FFL would in essence become the importer... so what is stopping him from keeping the firearm for himself? I like to look at it as... I am the Importer and the FFL is "Customs".
"Customs" in the shipping world will not release my Import until all paperwork and Federal laws have been obeyed & my items have been inspected... sounds kinda like an FFL too me.



An FFL who doesn't collect sales tax for these types of transactions may not initially get hit by state Board of Equalization, but if that turns out to be a substantial portion of his business over time it really might raise a red flag - with consequent charging him for back taxes, fees and accumulated interest based on the estimated value of the firearms sold in this manner if no detailed accounting were available. (Of course, the 4473/ DROS paperwork will effectively testify against him that these sales/transfers did happen.)

And artificially undervaluing items by significant amounts to reduce sales tax load can be considered fraudulent.
Bill Wiese
San Jose

This does make a lot of sense... but let's compare it to the DMV. I buy a car from some guy... person to person. I need to goto the DMV and register it. The DMV asks for the value and what I paid. I tell them, but do I pay the DMV a sales tax on the purchase price of the car? NO, I pay the state that tax myself, right?


icormba wrote:
i know that the 3 FFL's I have used do NOT collect it... but none of these has a gunstore "storefront"


Presence/absence of storefront is absolutely irrelevant. It's still a business selling things. These guys must not be too bright, or are hoping against hope that they fall under the radar (there is a chance). They must have some kind of biz licenses, zoning, etc. to retain their FFL, though, so they ultimately will have some exposure to state tax folks.
Bill Wiese
San Jose

Well, many people on this forum know these Dubious FFL's and have used them for YEARS! I won't mention these FFLS's by name, but one is located in Milpitas, one in Santa Clara, and one in Saratoga. I highly doubt that they are not all that bright... I may not be that bright myself http://calguns.net/groupee_common/emoticons/icon_smile.gif , but these guys seem to be liked by a lot of people here. ok, that's not saying that they are bright either, but hey http://calguns.net/groupee_common/emoticons/icon_smile.gif

These guys are not selling THINGS... things are tangible items... a Service is NOT! Look it up on the Franchise Tax board site... tangible items are taxed, but the FFL did not buy this item. The FFL is not selling or re-selling anything but a service. Money for that tangible item is not changing hands between me & the FFL.



What I always wondered is, how
does the FFL know how much it cost you to base the amount of tax to collect?


For his protection, he's gotta collect a reasonable amount for the fair market value of the gun; condition/age/resale value, etc. are allowed to be considered. He can't say, "OK, we'll value this 95% Sig 226 at $110," and you end up paying only $8+ in sales tax. But that gun could legitmately be valued at $325. Since the FFL has probably sold common gun types several times before, if audited, other sales could be used as guidance - or pricing of other similar sales in region from other dealers could be used. If he's audited and had no sales paperwork he could have the bad luck that everything new is regarded as sold at MSRP from factory catalogs - and would have to spend time + tax lawyer $$ fighting these valuations.

Bill Wiese
San Jose

The FFL I used in Santa Clara handled my HiPower transfer a few months back... he commented on how he hadn't done a Hi Power in 10-15 years! I was surprised because the HiPower is one of the most common handguns in the World and have been used since 1935. He said "hey, look around... I usually do the cowboy action thing http://calguns.net/groupee_common/emoticons/icon_smile.gif " ok, probably gave that FFL name away http://calguns.net/groupee_common/emoticons/icon_wink.gif

bwiese
04-01-2005, 3:04 PM
Chris..

Originally posted by bwiese:
Any FFL who DOESN'T collect sales tax for this type of firearm sales is very stupid and is clearly not really a businessman.


so basically your calling legitimate businessmen stupid? These guys have been in business for years and all of a sudden they are stupid?

Yup. At least stupid in a business sense - they just haven't been caught yet. Lotsa gun shops are poorly managed, guy got into biz because he was 'into guns'. One could argue that they're very stupid to be exposing themselves to severe financial risk (back taxes, fees, penalties, accumulated interest). Furthermore, many small biz like these might not be incorporated so they're transferring the liability directly to their personal/family assets. Clearly they have not taken professional advice from a tax consultant.


No argument about the purchaser paying a use tax at the end of the year.

Yes. It's his responsibility if tax isn't charged, usu for out of state purchase. But in the specific case we're discussing, sales tax SHOULD have been charged.

Thankfully most online transactions with guns are handled by money order, many do not accept credit cards.

Absolutely irrelevant. May be a tad more difficult to initially get caught w/MOs. But they have to deposit that money etc somewhere - paper trail. Plus the 4473s/DROSs records all indicated guns were sold!! And a biz that has a "cash/MO bypass" for recordkeeping is a BIG red flag to auditors. (Much like businesses who have a "10% discount for cash only" sign.)

by this meaning, the Ca FFL would in essence become the importer... so what is stopping him from keeping the firearm for himself? I like to look at it as I am the Importer and the FFL is "Customs". "Customs" in the shipping world will not release my Import until all paperwork and Federal laws have been obeyed & my items have been inspected... sounds kinda like an FFL too me.


It got in his inventory. You have it. 4473/DROS says so too. He runs a business, so it's a commercial transaction. Thus it's taxable.

And an FFL is expressly not issued for hobby use, but only for business use.

This does make a lot of sense... but let's compare it to the DMV. I buy a car from some guy... person to person. I need to goto the DMV and register it. The DMV asks for the value and what I paid. I tell them, but do I pay the DMV a sales tax on the purchase price of the car? NO, I pay the state that tax myself, right?

I do believe you need to correctly report sales price and there are penalties for not doing so, if discovered or unreasoable amount, etc. But this is a USED car private-party sale. Buying from a lot would incur sales tax.


Well, many people on this forum know these Dubious FFL's and have used them for YEARS! I won't mention these FFLS's by name..., I highly doubt that they are not all that bright... I may not be that bright myself http://calguns.net/groupee_common/emoticons/icon_smile.gif , but these guys seem to be liked by a lot of people here.

I'm sure they're great guys that love guns. Whether they're liked by others is immaterial to CA state Board of Equalization during tax audit.

These guys are not selling THINGS... things are tangible items... a Service is NOT! Look it up on the Franchise Tax board site... tangible items are taxed, but the FFL did not buy this item. The FFL is not selling or re-selling anything but a service. Money for that tangible item is not changing hands between me & the FFL.

Read up on the term imputed income. Even if the money didn't cross their hands physically or electronically, it's still an artifice: the money SHOULD have crossed their hands and therefore can/will be regarded as doing so because that FFL is not providing an additional service: since the only way the sale happens is thru him, the 'nexus' of the transaction is at the CA FFL dealer and not an interstate transaction.

Bill Wiese
San Jose

-hanko
04-01-2005, 4:35 PM
2 ffl's, one storefront & one not, have told me that they were advised by the ftb that they are not required to collect tax...interpretation is that the buyer owns the gun, having paid for it. He needs to put it through a CA ffl to get posession, not ownership. Since, therefore, the ffl is clearly not selling the gun, tax payment continues to be the responsibility of the buyer/owner, not the ffl transfering the gun.

I don't want to start a huge hassle, just relating what I've been told by a couple of folks. Original poster should seek an opinion from the ftb, preferably in writing.

Either way, on a private sale, price can definitely be structurec with the seller to let the buyer either pay the tax to the seller, or pay it through the ffl. I'd have no issue paying the ffl, assuming he'd provide the verification that all my tax money ended up in SAC.

-hanko

icormba
04-01-2005, 4:55 PM
BRD,
apparently FFL holders don't know anything, so go with -hanko's advice, get more info from people who would know more on tax law concerning guns... contact both the Ca FTB: http://www.ftb.ca.gov/
and the Ca DOJ together, see what they both say.

My tax guy says that the FFL need not collect sales tax, but he did admit he wasn't 100% sure about Guns & FFL holders.

Inoxmark
04-01-2005, 5:10 PM
BRD, my advise would be different: just contact the FFL you intend to use for the transfer and find out if he charges sales tax on interstate transfers. Obviously, as this thread confirms, there are some that do, and some that don't.
The time to find out is before the purchase, not after he has your gun in his possession and tells you to pay tax. If the guy routinely charges tax you can argue with him and show any letters you want, most likely it would be pointless and you'd just come through as an a**.

Silverback
04-01-2005, 5:16 PM
I beleive Hanko is correct. I have done a couple of these and I make the point that I already own the gun and they do not.

Bwiese is correct in that the Socialist Rebulick of Kalifornia has a use tax due according to their tax laws. That's my problem at tax time. It's part of your tax forms.

I have found a couple of FFLs in Sac that do not collect taxes and both use the same logic. They do not handle money for the purchase of a gun. They collect money as a fee for a service. I have decided I will not be doing transactions with any FFL that tries to collect taxes when I already own the gun and I cannot guarantee that the money will end up in Sac.

Look around - you can find them. Take responsibility for your own taxes on your tax form is my logic.

bwiese
04-01-2005, 6:17 PM
hanko wrote:
Two ffl's, one storefront & one not, have told me that they were advised by the FTB that they are not required to collect tax... interpretation is that the buyer owns the gun, having paid for it. He needs to put it through a CA ffl to get posession, not ownership.

Advised by the FTB? As I recall, FTB handles income tax. Board of Equalization handles sales tax.

Bill W
San Jose

-hanko
04-01-2005, 9:42 PM
Bill, franchise tax board is the only state tax board I could remember, please pardon me. The folks I spoke with related that the opinions were given by those who work in the sales, not income, tax division. Thanks for the correction.

I still pay use tax to the prk, but not to a prk ffl if the gun comes from out of state.

If I were seriously worried about the topic on a personal level, I'd pay for an opinion from a tax attorney or my cpa.

-hanko

esskay
04-01-2005, 10:34 PM
This is interesting. I was shopping around for some stuff, and came across a web site which has the following option on its checkout page:

All orders being shipped directly to California and Massachusetts are subject to local state taxes. To avoid paying taxes, we can ship your order to our headquaters and then re-ship it from there. However, this could add a 2 to 3 day delay to your order. Please let us know how you want us to handle this by checking one of the options below:

I wish to receive my order sooner. Just ship the order directly to me and I will pay the local state taxes.
- Normal taxes of $27.99 will be applied.
I don't mind waiting a few more days as long as it saves me money.
- A handling fee of $5.00 will be applied.

http://www.sparco.com/

icormba
04-02-2005, 4:50 PM
Originally posted by esskay:
This is interesting. I was shopping around for some stuff, and came across a web site which has the following option on its checkout page:

<BLOCKQUOTE class="ip-ubbcode-quote"><div class="ip-ubbcode-quote-title">quote:</div><div class="ip-ubbcode-quote-content">All orders being shipped directly to California and Massachusetts are subject to local state taxes. To avoid paying taxes, we can ship your order to our headquaters and then re-ship it from there. However, this could add a 2 to 3 day delay to your order. Please let us know how you want us to handle this by checking one of the options below:

I wish to receive my order sooner. Just ship the order directly to me and I will pay the local state taxes.
- Normal taxes of $27.99 will be applied.
I don't mind waiting a few more days as long as it saves me money.
- A handling fee of $5.00 will be applied.

http://www.sparco.com/ </div></BLOCKQUOTE>

could be that they drop ship from warehouses in California or Mass?

Mark in Eureka
04-14-2005, 7:51 PM
If I was charged sales tax on a firearm I had imported into California, I would pay it. I would then inform the Franchise Tax Board I had made this purchase, how much tax I had paid and to whom I had paid the tax. Then I would get on with life.

J-cat
05-07-2005, 7:42 PM
He!He!He!

This sales tax thing is like downloading music off the internet. Fortunately, that one handgun per month law will keep us from attracting attention.

HEWA195@CS.COM
05-09-2005, 9:07 AM
Both gun stores in the area charge sales tax. The whole internet buying thing has a lot of states taking a closer look at the lost revenue from out of state sales. Technically everything purchased out of state is supposed to be taxed. I am picking up a used truck from out of state.When I go to the DMV they are going to hit me with about $1500 in sales tax.

laguns
05-10-2005, 8:10 PM
Originally posted by BRD:
Say if I win an auction for a firearm from an out-of-state seller, I pay the guy and he doesn't collect sales tax since it's an interstate transaction. It is then shipped to an FFL in CA who then processes all the paperwork. Of course there's an FFL fee, but is he also required to collect sales tax on the cost of the original purchase?

I actually called the State Board to find out for myself, and the short answer was no, I (the transfer agent) do not “have to” collect the sales tax unless I want to. If I don’t, it will be left to the client to pay.

icormba
05-13-2005, 7:51 PM
Originally posted by L.A.GUNS:
I actually called the State Board to find out for myself, and the short answer was no, I (the transfer agent) do not “have to” collect the sales tax unless I want to. If I don’t, it will be left to the client to pay.

THANK YOU L.A. GUNS!!!! http://calguns.net/groupee_common/emoticons/icon_smile.gif

07-23-2005, 12:30 AM
I'm in this situation right now...The FFL I contacted said that he will only collect tax if the "out of state" or "internet" seller is a business, regardless if item is new or used. Around here, sales tax amount is same as use tax. If private seller, then he ignores the tax.

icormba
07-23-2005, 5:55 PM
Originally posted by gab:
I'm in this situation right now...The FFL I contacted said that he will only collect tax if the "out of state" or "internet" seller is a business, regardless if item is new or used. Around here, sales tax amount is same as use tax. If private seller, then he ignores the tax.

how would they know if they are a business?

gimmejr
07-23-2005, 8:30 PM
Ive asked my FFL and he said if the seller sends a bill of sale with the gun then he'll charge tax.

maxicon
07-24-2005, 11:40 AM
This does make a lot of sense... but let's compare it to the DMV. I buy a car from some guy... person to person. I need to goto the DMV and register it. The DMV asks for the value and what I paid. I tell them, but do I pay the DMV a sales tax on the purchase price of the car? NO, I pay the state that tax myself, right?

Slightly off topic, but in this case, you pay the "use tax" (equivalent to the sales tax) right to the DMV when you register the car. I just bought a used car last week, and this is how it worked. No registration transfer without paying first.

Check or cash - no credit cards, debit, whatever.

max

stator
07-24-2005, 1:12 PM
I recommend that if you do have a FFL that collects sales tax on a transfer service, make sure the receipt is clearly marked what was paid as CA sales tax.

A co-worker paid the tax to a transfer FFL and behold, no indication of the sales tax on the receipt... just the dollar amount. I wonder what pocket that cash ended up into?

07-28-2005, 11:37 PM
I'm getting a gun in from OKlahoma, and my FFL re-stated that tax has to be collected. He was informed via an "OR" that he has to collect tax on gun transfer coming from a business...I think he said "OR". again he said "paper trail", making it hard for him to avoid collecting tax (either sales or use tax). He also did say that if interstate seller is private, then he is not obligated to collect tax.

what is right regarding purchasing from a business????

There must be a "new" direction from "someone" advising gun traders of the new rule; or he is bull****ting me to try and get a few extra bobs from me, as posted by stator.