Manufacturing Ammo as a Business.

[mcubed4130]

Hey guys,

In my never-ending quest to figure out new ways of making a few extra $$'s and/or replace my current income methods.

I was thinking... what is the groundwork required to "Manufacturer Ammo and sell it? - (probably Internet sales and/or CG members only for local pickup :) )" - potentially from a dedicated set of high end fool proof machines inhabiting my garage.

I've heard I may need an FFL Type 06, to make the feds happy about their 11% tax on ammo? and/or to be able to ship the ammo?

I've heard I may *NOT* need an FFL, but instead just need 2 or 3 million in liability insurance in case someone uses the ammo I sell them and their gun goes boom?

Locations could include, either my home - which is in the city of San Jose... or some unincorporated land my family owns in Santa Clara county... although my preference would be to do this from my garage at my home.

Thoughts?

-M3

[50 Shooter]

PM MrKubota as he just went through the process of getting his license to manufacture/sell ammo.

[C.G.]

Liability insurance has got to be through the roof.

[Blue]

Liability insurance has got to be through the roof.

No kidding plus IIRC San Jose has rules against any out of home gun related businesses.

[PanzerAce]

what are the rules about occasionally selling reloads?

[mcubed4130]

what are the rules about occasionally selling reloads?

http://www.calguns.net/calgunforum/showpost.php?p=683665&postcount=7

Legally and for liability reasons, you really shouldn't be selling those reloads as loaded ammunition. I imagine that neither you nor the other guy have a reloader's FFL. Without that in the mix, if anything happens to the buyer's gun after he's fired these reloads you're selling, it can be blamed on you.

Now, it's one thing if you sell it as components you're too lazy to pull apart, and tell 'em they have to pull it apart themselves, not just fire it - that's another thing.

We have an example, here, which is why I believed I needed to get a Type 06 - FFL.

But I've seen a lot of counterpoint on the net... so I'm trying to figure out - what I would need to do.

-M3

[LAK Supply]

I looked into this a while back as we were considering loading our own brand of ammo. You do not need an FFL to reload and sell.... it is much less restrictive to be a "re-manufacturer" rather than an new ammo manufacturer. That's why there are so many companies doing it.

There is no such thing as a "foolproof" machine...... and unless you want to spend $100k + you're going to be pulling a lever for a long time to come. We looked into automated setups and they were going for $100-$125k new for the big production machines. We ran across a deal for some that were going for $40k used.... decided not to try it as things with my partner's health were getting shaky.

We had 5 or 6 machines set up at one time and ended up coming across a bunch of bulk components for .30 carbine (military tear-down stuff). That was right about the time Armscor re-tooled for .223 and the .30 carbine market was wide open. Needless to say, we bought a bunch of the stuff and loaded it on a Dillon with all the bells and whistles. The machine would yell at you if your charge was off, auto-indexing, fed everything, etc. I think it ran $1200 or so for the machine and all of the add-ons. It was basically a one-pull = one load thing, so we started looking at insurance etc.

Liability insurance will kill you unless you're doing a LOT of volume to recover your overhead. You are limited in your powder and primer storage (although you can spread the components around storage units etc. in legal amounts) by the firecops, and you would want to set up a corporation (S-corp for our purposes since we didn't want to deal with double taxation and were not concerned with a large number of shareholders) to protect yourself from lawsuits- you will almost surely get sued if you're loading and selling for very long. There are a lot of stupid and greedy people out there and all it takes is one of them using your stuff and getting hurt and you're finances are through in a sole-proprietor situation.

I guess what I'm trying to say is that it's usually better to purchase ammo from somebody who's already doing it and can give you a good deal (as we did) until you're sure that you want to deal with it, and you're sure that you have enough business to really justify taking on the liability. I'm not trying to rain on your parade, but you do need to know that once you become the manufacturer of something that is demonized the way ammo is you're fair game. As well, QC is difficult to keep up on without having the cool toys that the big boys use. Ammo is designed to ignite, and one faulty load can happen when you're turning out thousands of rounds by hand; catching that one faulty load can sometimes be difficult, especially when you're in a hurry to meet order quantities.

Just my $.02.........

[mcubed4130]

No kidding plus IIRC San Jose has rules against any out of home gun related businesses.

This is what I found... I wouldn't be selling or servicing any firearms - so I'm probably ok there... However, I've been unable to find what the requirements are from the San Jose Fire Department - as to what conditions require a Hazardous Materials Permit... government gotta love it. I would guess that more than "X" lbs of smokeless powder would perhaps then require a permit.


http://www.sanjoseca.gov/planning/counter/faq/homocc.asp

...
Other Restrictions

Certain home businesses are not compatible with a residential neighborhood because of their potential for either hazard or nuisance. The following activities are prohibited as home occupations by the Municipal Code:
...
* Firearm sales and services.
...
* Any use which requires a Hazardous Materials Permit from the Fire Department.

-M3

[mcubed4130]

LAK,

No rain on my parade . :) I'm info gathering, and greatly appreciate the info.

I looked into this a while back as we were considering loading our own brand of ammo. You do not need an FFL to reload and sell.... it is much less restrictive to be a "re-manufacturer" rather than an new ammo manufacturer. That's why there are so many companies doing it.


Just found this... on the ATF site, so maybe things have changed...

http://www.atf.gov/firearms/fflc/ffl/faqs_manu.htm
...
Is one who reloads ammunition required to be licensed as a manufacturer?

Yes, if he engages in the business of selling or distributing reloads for the purposes of livelihood or profit. No, if he reloads only for his own use.
...


There is no such thing as a "foolproof" machine...... and unless you want to spend $100k + you're going to be pulling a lever for a long time to come. We looked into automated setups and they were going for $100-$125k new for the big production machines. We ran across a deal for some that were going for $40k used.... decided not to try it as things with my partner's health were getting shaky.

Sorry to hear about your partner - hope things worked out. As for the price of automated equipment this is the ballpark range I was thinking, assuming I did this as a regular business. If I'm only making a few cents up to a few tens of cents per bullet... I'd make ALOT. Which as you mentioned, I'd need to do - to offset my defensive methods at handling liability costs.

-M3

[CCWFacts]

With ammo prices the way they are, I can see that this might be an appealing business idea.

[xenophobe]

With ammo prices the way they are, I can see that this might be an appealing business idea.

I don't.

Every reloading company that I've known in the Bay Area has died from lawsuits.

It's not a matter of if you'll have one, it's a matter of when.

[mcubed4130]

Sorry to hear it... although I would suppose that anything with the word gun or firearm in California is a target as well.

-M3

[CCWFacts]

I can imagine, a suit would be inevitable. There would be an injury so there would be a tort and therefore punitive damages. Liability insurance would be killer.

I have wondered if the reason why gun-crazy American imports so many guns is because of liability. Can't do much legally to Glock GmbH because they're in Austria where it's much harder to bring a suit. US distributors could be knocked out but they don't hold the real value of the company.

[mcubed4130]

I don't.

Every reloading company that I've known in the Bay Area has died from lawsuits.

It's not a matter of if you'll have one, it's a matter of when.

Interesting... Any reason why the Bay Area - is worse than other locations in CA? Or should I just incorporate this baby out of state, or out of country? ;)

-M3

[Hunter]

....should I just incorporate this baby out of state, or out of country? ;)

-M3

Even if you incorporated in say NV, but did the work here in CA, you still would have to file for foreign corporation in CA and pay the fees. So it doesn't do much for you. Plus your FFL license will need to be for the place of sale/manufacturing, reqardless of where you are incorporated.

[mcubed4130]

Even if you incorporated in say NV, but did the work here in CA, you still would have to file for foreign corporation in CA and pay the fees. So it doesn't do much for you. Plus your FFL license will need to be for the place of sale/manufacturing, reqardless of where you are incorporated.

I agree. The federal licensing etc, would certainly need to happen where-ever the location is.

What I don't understand from Xeno's post is... why the Bay Area, is worse than other locations in PRK, and/or if I incorporate and even place the real business in say NV. Per your example, why does that reduce my chances of being sued, by PRK nutjobs?

I would expect that anyone in CA - could attempt to sue any company within the US for liability damages at anytime anyway...

Am I missing something here?

-M3

[simonov]

What I don't understand from Xeno's post is... why the Bay Area, is worse than other locations in PRK . . .

Am I missing something here?

Yes, you are missing cites from Xenophobe to back up his assertion.

[xrMike]

Yes, you are missing cites from Xenophobe to back up his assertion.He's a big fan of those Leupold cites.

Don't even get him started about Super Snipers...

[mcubed4130]

Yes, you are missing cites from Xenophobe to back up his assertion.

Actually I talked to Xeno, I was reading too much into his original post... I should have read it as "for any number of reasons - not to mention lots of lawsuits... nearly every Bay Area based ammo manufacturer has gone out of business".

Anyway, so it seems the following is true:

1. Since I am thinking of doing this for profit, to get out of my current day job, the right answer would be - yes - I need a FFL Type 06. As I will garner the ire of the Feds, if they don't get their 11% tax.

2. Somewhere between 1 and 3 million is the right range of liability damage, as encouraged by the ATF and/or people here on this board who have experience. And - yes - this would be a fair amount of $$ per month to cover the cost of the policy.

3. Since #2 - costs serious $$ - it wouldn't make much sense to do this sort of thing for a few thousand rounds per month, as it's unlikely you'd even hit the break even point on the liability insurance. So, small time reloading equipment like the Dillion 1050, is just waaaaay to under powered.

4. Since #4 - requires high powered equipment, I'm looking at probably in the neighborhood of 100s of thousands of dollars in equipment, a crew of at least 10 employees, and 5000sq ft - per line (1 line per cartridge). So nothing short of a large warehouse will do... and with the amount of materials required to keep those machines running, I'd certainly need some type of Fire Department blessed HM permits as well.

If I missed anything, please let me know!

If not, thanks to each of you for the info you provided, it's been very helpful.

-M3