FFL needed for a new business question:

[scootergmc]

Hello all...

I have a friend working on setting up an LLC and running a business involving military/LEO tactical training, etc. Within this business will exist the need to receive weapons and perform modifications from the military. Yes, these will be full auto weapons. There will be no manufacturing or converting from semi to full auto. From the limited internet research I've done, I think he would be in need of an 01 FFL along with an SOT 3. Aside from local permits/restrictions, and assuming the business stays in CA, what would DOJ require, AW dealer permit along with high cap mag permit, etc.?

Thanks in advance.

[billslugg]

Hello all...

I have a friend working on setting up an LLC and running a business involving military/LEO tactical training, etc. Within this business will exist the need to receive weapons and perform modifications from the military. Yes, these will be full auto weapons. There will be no manufacturing or converting from semi to full auto. From the limited internet research I've done, I think he would be in need of an 01 FFL along with an SOT 3. Aside from local permits/restrictions, and assuming the business stays in CA, what would DOJ require, AW dealer permit along with high cap mag permit, etc.?

Thanks in advance.

If you are modifying a weapon, then you are manufacturing. As long the manufacturer (the owner) has an exemption then they are OK and do not need an 07. The Govt has an exemption and you do too but only for your personal weapons .

You can save a few bucks if you can get your county to allow you manufacturing zoning. It is only $150 for a three year 07 vs a three year 01. An 07 has all of the privileges of an 01 (sales/smithing) and an 06 (ammo manufacturing).

Then, if you keep your manufacturing income below half a million yearly, you can use the reduced rate manufacturer SOT at $500 which is the same as a dealer SOT 3.

Bottom line - go as a manufacturer and get everything you proposed and at a lower price plus you can manufacture for profit.

[ke6guj]

If you are modifying a weapon, then you are manufacturing. As long the manufacturer (the owner) has an exemption then they are OK and do not need an 07. The Govt has an exemption and you do too but only for your personal weapons .

only if you are modifying "before sale". If a customer has you modify/gunsmith their firearm, you don't need an 07 unless you your mods make it an NFA firearm. And then, you would need the 02SOT to go along with it.

You can save a few bucks if you can get your county to allow you manufacturing zoning. It is only $150 for a three year 07 vs a three year 01. An 07 has all of the privileges of an 01 (sales/smithing) and an 06 (ammo manufacturing).

Then, if you keep your manufacturing income below half a million yearly, you can use the reduced rate manufacturer SOT at $500 which is the same as a dealer SOT 3.

Bottom line - go as a manufacturer and get everything you proposed and at a lower price plus you can manufacture for profit.

But if you are an 07, the State Dept says you have to register with ITAR which is around $2500 a year.

From the ATF:

Q: May a person engage in gunsmithing under a dealer’s license (type 01), or do gunsmiths need to be licensed as “manufacturers” of firearms?
Generally, a person engaged in gunsmithing requires only a dealer’s license (type 01). There are circumstances in which a gunsmith might require a manufacturing license. Generally, a person should obtain a license as a manufacturer of firearms if the person is: 1. performing operations which create firearms or alter firearms (in the case of alterations, the work is not being performed at the request of customers, rather the person who is altering the firearms is purchasing them, making the changes, and then reselling them), 2. is performing the operations as a regular course of business or trade, and 3. is performing the operations for the purpose of sale or distribution of the firearms.

Below are examples of operations performed on firearms and guidance as to whether or not such operations would be considered manufacturing under the Gun Control Act (GCA). These examples do not address the question of whether the operations are considered manufacturing for purposes of determining excise tax. Any questions concerning the payment of excise tax should be directed to the Alcohol and Tobacco Tax and Trade Bureau, U.S. Department of the Treasury.

1.A company produces a quantity of firearm frames or receivers for sale to customers who will assemble firearms.

The company is engaged in the business of manufacturing firearms and should be licensed as a manufacturer of firearms.

2.A company produces frames or receivers for another company that assembles and sells the firearms.

Both companies are engaged in the business of manufacturing firearms and each should be licensed as a manufacturer of firearms.

3.A company provides frames to a subcontractor company that performs machining operations on the frames and returns the frames to the original company which assembles and sells the completed firearms.

Both companies are engaged in the business of manufacturing firearms and should be licensed as manufacturers of firearms.

4.A company produces barrels for firearms and sells the barrels to another company that assembles and sells complete firearms.

Because barrels are not firearms, the company that manufactures the barrels is not a manufacturer of firearms. The company that assembles and sells the firearms should be licensed as a manufacturer of firearms.

5.A company receives firearm frames from individual customers, attaches stocks and barrels and returns the firearms to the customers for the customers' personal use.

The operations performed on the firearms were not for the purpose of sale or distribution. The company should be licensed as a dealer or gunsmith, not as a manufacturer of firearms.

http://www.atf.gov/firearms/faq/manufacturers.html

[billslugg]

...only if you are modifying "before sale".

In the language of the ATF, any alteration of a firearm from its original configuration is manufacturing.

In every case of altering a firearm, the owner of the firearm is considered to be the manufacturer. If the alteration is made by a gunsmith, then the gunsmith is, in fact, manufacturing a weapon, but he is not considered to be the manufacturer since he is not the owner. Therefore the gunsmith does not need an 07. The owner of the weapon does not need an 07 as long as he is not engaged in the business. He gets a personal exemption.

But if you are an 07, the State Dept says you have to register with ITAR which is around $2500 a year.

The state department does not have statutory authority to levy the fee unless the item you are manufacturing has been declared to be a potential threat to national security. You determine this by filing a Commodities Jurisdiction Request and waiting for an answer. You must furnish descriptions, drawings, whatever you can. They usually reply within 14 days, and must reply within 65 days. If you are deemed a threat, then you must register with them at $2400 per year.

There are rumors that you MUST pay the fee, but the rumors are not substantiated. I can cite the laws and regulations that give you the right to a CJ ruling before they try to sock you with the fee. If have spoken to several of them and they are in agreement. They want to see it first, then rule, then bill you.

As to what might be deemed a threat, I do not know. I suppose it could be anything. That is an area in which I have no data. I am sure that there are pretty solid legal definitions in the case law of what level a "threat to national security" must rise to. A lot of people have gone to prison because some thing or another was a "threat to national security". Their lawyers must have sorted it out. It cannot legally be "just anything".

[scootergmc]

So he's still okay with the 01 and SOT class 3? But the 07 would get him all the benefits of the 01 and be cheaper? Would there be a need to get the 01 at a later date should he decide to deal in sales at a later date?

Thanks!

[ke6guj]

it all depends on what kind of gunsmithing he is gonna do. Is he just gonna work on customer-owned stuff, or is he gonna buy stuff, modify it, and then resell it. If the fomer, then the 01FFL/03SOT should be fine, if the later, then he'd need to go the 07FFL/02SOT.

As for "cheaper", the 01FFL/03SOT combo is effectively $566 per year for the first three years, and then it is $530 per year after that. The 07FFL/02SOT effective fee is $550 per year, every year. Cost was determined by determining the "yearly cost" of a 3 year FFL and adding it to the yearly SOT fee. So, forgetting about ITAR for a moment, the licensing costs to ATF are basically the same. That does not include any extra fees that a local entitiy may charge a manufacturing business over that of just a store. And regarding ITAR, I'll leave it up to you to research it more to determine if it applies to you. If it does, then that 07 ends up costing you an extra $2500+ a year.

As for getting an 07/02 now and then needing an 01/03 later, nope, shouldn't need to. An 07 can basically do anything an 01 can do. In addition an 07 can manufacture ammo, just like an 06 can.

[billslugg]

An 07 can basically do anything an 01 can do. In addition an 07 can manufacture ammo, just like an 06 can.

As best I can determine from what I have read there is a quirk to that. I do not believe an 07 can manufacture armor piercing ammo, although an 06 could get the proper credential.

On the license form under 07 it says "ammo except armor piercing", but it does not say that on the 06 section.

Am I interpreting this correctly?

[ke6guj]

when the feds talk about "armor piercing ammo", they are talking about handun AP ammo, not rifle AP ammo, just throwing that out.

That said, the way I understand it is that neither an 06 or 07 can manufacture "AP" ammo. In order to manufacture "AP" ammo, you need a Type 10 FFL.

I don't have a copy of the license form, but the regs do back me up:

Sec. 478.42 License fees.

Each applicant shall pay a fee for obtaining a firearms license or
ammunition license, a separate fee being required for each business or
collecting activity at each place of such business or activity, as
follows:
(a) For a manufacturer:
(1) Of destructive devices, ammunition for destructive devices or
armor piercing ammunition--$1,000 per year.
(2) Of firearms other than destructive devices--$50 per year.
(3) Of ammunition for firearms other than ammunition for destructive
devices or armor piercing ammunition--$10 per year.

(a)(1) allows for the manufacture of AP ammo, at $1000 per year, which is what a Type 10 FFL costs.
(a)(2) is the 07FFL, $50 per year.
(a)(3) allows for ammo manufacturing, except for AP or DD ammo, and costs $10 per year, which is the cost of an 06FFL

wikipedia backs me up as well:

Type 6 Licensed manufacturer of ammunition and reloading components other than Armor Piercing ammunition

Type 7 Title 1 manufacturer of firearms, who can also act as dealer, other than Destructive Devices, ammunition and ammunition components other than Armor Piercing ammunition. Can also manufacturer & deal in Title II NFA firearms with class 2 tax stamp.

Type 10 Manufacturer of Title 1 firearms, ammunition and ammunition components, manufacturer of NFA Destructive Devices, ammunition for Destructive Devices and Armor Piercing ammunition (can act as a dealer). Requires payment as an SOT Class 2 (can act as an NFA Dealer) and registration with the US Dept. of State as a Manufacturer under ITAR/D-TRADE. To manufacture any DD with an explosives content (i.e. Flash-Bangs), requires an additional FFL; Type 20 Manufacturer of High Explosives.

[billslugg]

OK, I understand now.

That is an interesting statement under the "10" where it says you "must register with ITAR". It makes sense, since there is nothing requiring this license that would not be covered by ITAR.

The case is different for an 07, what with squirrel guns and all. Perhaps this quote is the source of the rumor that 07's had to register with ITAR?

Another reason I doubt the rumor is that there are no screaming 07's running around, having been prosecuted for not paying.

[ke6guj]

I do recall reading in Small Arms Review a couple months ago in that lawyer's column, Mark Barnes, IIRC, where he went over ITAR. I"ll have to see if I can find it.

[billslugg]

I do recall reading in Small Arms Review a couple months ago in that lawyer's column, Mark Barnes, IIRC, where he went over ITAR. I"ll have to see if I can find it.

I would like to see that. BTW, if you are an 07 do not be worried by the fact that you must run the ITAR gauntlet. Everyone must. No one is exempt, and it does not just apply to arms. If you write computer code, work with night vision, communications algorithms, navigation equipment, you might unwittingly transfer some innocuous information and be found liable for $2M is fines and a ten year stint.

Here is a good review of ITAR. I have edited this exerpt.

If a firm can show that its product has predominant civilian applications and that it has a performance equivalent to products used predominantly in civilian applications and was not designed originally for military application or was funded by the military then the company can possibly avoid the more restrictive ITAR determination. However, the State Department has considerable discretion in determining whether a company falls under ITAR.

This determination is made after you submit a Commodities Jurisdiction letter. If you are paying the $2400 ITAR fee and have not had your product run through the CJ process, then you might be paying it needlessly.

[scootergmc]

I do recall reading in Small Arms Review a couple months ago in that lawyer's column, Mark Barnes, IIRC, where he went over ITAR. I"ll have to see if I can find it.

If you have to come across the issue, let me know. ITAR issues may be a problem, but not on the firearms end.

[ugimports]

Related to this discussion is:

http://www.firearmslawgroup.com/publications/small-arms-review/80-itar-what-is-it-and-why-do-i-need-to-pay

That might be the article being referred to by ke6guj.

[billslugg]

Related to this discussion is:

http://www.firearmslawgroup.com/publications/small-arms-review/80-itar-what-is-it-and-why-do-i-need-to-pay

That might be the article being referred to by ke6guj.

Fire Arms Law Group, Small Arms Review is a bit mixed up.

They claim that ITAR does not define manufacturer and it cites Webster instead. The definition of manufacturer is in the US Code that authorizes ITAR, in ITAR itself, in the first section of each, is very clear and bears no resemblance to Webster.

There must be an alteration of the weapon from original design and it must be done for resale. There is a personal exemption that you can lose if you intend to make a profit and you derive a substantial portion of your income from it.

But unlike smithing, selling or pawning there is no "occasional" exemption. That means that if you lose your personal exemption and you are smithing, pawning or selling, the law will still allow for "occasional" activity. Say you set up a store front, get a business license and neglect to get an 01 FFL. After a few sales on the first day, the ATF shuts you down. You would be warned and no charges would be filed because you are not breaking the law since your activity was "occasional". Not so for manufacturing. If you set up a tiny shop with a business license but no 07, you will break the law on the first gun you alter and then sell. Because you have a business license you have met the "in the business" standard thus you lose your personal exemption. With no "occasional" exemption you are screwed. Same thing goes for importing/exporting but there is no personal exemption so you are dead meat from day one.