Interesting tid bit on tax implications of building and selling a FAB-10 for FFLs.

[El Rojo]

At my initial ATF inspection today we got on the subject of building firearms and having to pay the excise tax. I asked about the FAB-10 and he said if you buy a stripped lower from Shoeless Ventures and you assemble it, you are subject to the excise tax for building a firearm. I said that was interesting and wondered how gun shops around here got around it. He said they should have to pay the tax. However, he said if you were to sell the lower, have the owner take possession for a day or two, and they brought it back to you to assemble, that is gunsmithing and not subject to the tax. Then he got real interested because I said Shoeless Ventures only sends out stripped lowers and he started thinking about all of the FAB-10s out there and if they needed to pay the excise tax or not. He said the ATF he worked for is DOJ and the ATF that deals with tax issues is still Treasury and now called the TTB (Alcohol and Tabacco Tax and Trade Bureau). Then he backed off, said he really didn't know for sure and to not take his word for it because that is TTBs territory now.

So I need to contact the TTB and figure out what constitutes building a firearm and is subject to the tax and what is not. It sounds like there will be a way around it, but I want to make sure I know what it is. Nothing like an excise tax for building FAB-10s by sticking a lower parts kit in and adding two pins to decrease your profit margin and probably face penalties and possible criminal activity.

The letter I just sent off to the TTB.

Hello,

My name is El Rojo and I am currently in the process of obtaining my Class 01 FFL. An ATF agent came to my shop today to do the initial inspection and go over the regulations with me and the subject of the FAB-10 came up since I live in California. The agent said he believe that if I were to buy a FAB-10 stripped lower from Shoeless Ventures and then assemble the stipped lower by installing the lower parts kit, buttstock, and upper assembly and try to sell it, I would be subject to the excise tax collected by the TTB. He then stated he couldn't be quoted and I should check with your agency, but if I were to sell the stipped FAB-10 lower to a customer and that customer were to later purchase a lower parts kit, buttstock, and upper assembly from me and I were to assemble it, that would be covered under "gunsmithing" and not subject to the excise tax.

So my question is what are my limitations on purchasing and selling FAB-10 stipped lowers with either unassembled parts or assembled parts to complete the firearm? Can I do the following and not be subject to the excise tax:

1. Sell a stripped FAB-10 lower with an unassembled upper receiver/barrel, lower parts kit, and buttstock?

2. Sell a stripped FAB-10 lower on one sales date, and sell additional parts at a later time and assemble the gun for a customer?

3. Receive a stipped FAB-10 lower from a customer and assemble it from customer parts and charge a gunsmithing fee?

4. Sell a completed FAB-10 which I assemble?

I appreciate your help and any references to your regulations or laws that pertain to this issue. I would much rather be in compliance and be knowledgable about federal firearms laws than have something surprise me. Thank you.

El Rojo


I wonder if they will tell me the truth as I am basically asking them how to avoid paying their salary?

 

[Steelcore]

Only manufacturers need to pay the FET tax when they make a gun for sale.An individual doesn't have to pay a tax.If you want to make completed FAB10s for sale you need to get a different FFL.I think its called an 07 or 02 I forget which.

 

[Reed1911]

Steelcore,
No. Regardless if you are licensed as a manufacturer or not, you are still subject to the tax. Even if it is a one time build, you still have to pay the tax.

After re-reading your post, I'm not sure if "individual" you are refering to is licensed as an FFL or not. Any FFL holder (including 03 C&R) will be subject to the tax, individual un-licensed folks are not.

 

[El Rojo]

Only manufacturers need to pay the FET tax when they make a gun for sale.An individual doesn't have to pay a tax.If you want to make completed FAB10s for sale you need to get a different FFL.I think its called an 07 or 02 I forget which.

I don't think this is correct. The ATF guy would have stated this. Putting the upper and lower components together on a AR-15 or a FAB-10 is not manufacturing a firearm. It is gunsmithing! Creating a new lower with a serial number is manufacturing.

Any FFL holder (including 03 C&R) will be subject to the tax, individual un-licensed folks are not.

You are right, a individual can build the gun if they want, they are not subject to the tax. This according to the ATF guy. I asked him if I needed to pay the tax on my FAB-10 and he said no. I also have my C&R and he knew it, so I wouldn't think a C&R holder would have to pay it because they are not licensed to conduct a business anyway.

Really the whole thing doesn't make any sense. Doesn't Shoeless Ventures have to pay a tax when they make the lower? If the TTB taxes me again for sticking the rest of the parts on the lower, isn't that double taxation? Unless the tax is based off of value and because the lower is only a hundred bucks or so, they pay less tax than if they stick a few hundred dollars of parts on it. That is probably it.

I wrote the TTB, lets see how they respond.

 

[Reed1911]

As with most things with the AFT there is no clear cut defined rule and explanation. A lot of it is based on the value and value change. When the lower is made it is taxed at 10%, what would normally be considered as gunsmithing will in some cases increase the value to a degree that it is considered to fall under the manufacture clause and would be again charged at 10%. Ammunition buy the way is taxed at 11%. On all accounts, the tax is based on the gross sum of sale and not the net profits as one would think. Is it double taxation?, you betcha. Can you do anything about it? Not a chance.

 

[GunGoBoom]

Dear El Rojo. We don't accept stage or screen names. We will reply when we have your real name. Thank you. --The Gummint.

 

[El Rojo]

That is my street name and you'd better believe the man respects me keepin it real, yo.

 

[Commissar Gribb]

AFAIK, a stripped receiver is considered a completely rifle by BATF rules as it is 80% + finished.

IE: the person who had to pay a making tax was the guy who built said receiver.

adding the internals and upper does not make you the manufacturer (as silly as that sounds). You have to have made the receiver to be the manufacturer.

 

[El Rojo]

One would think so CG, but according to some sources in the ATF, if a licensed dealer assembles such a rifle, they owe the tax. What really matters is what the TTB says.