Sales tax on transfers?

[Cawdor]

I'm not saying that this is the law, but here is a line of reasoning.

Firearm is purchased from an FFL in another state.

A sale consists in the passing of title from the seller to a buyer for a price. UCC 2-106.

An FFL shall not sell, deliver, or transfer a firearm to any other person who is not licensed who has not passed a NICS check. 27 CFR 178.102.

A purchaser acquires all title which his transferor had or had power to transfer. UCC 2-403.

Conclusion: An out of state FFL does not have the power to transfer title to an unlicensed person until after the unlicensed person passes the NICS check in his home state.

A "sale" by an FFL in one state to an unlicensed person in another state would be a "sale on approval." UCC 2-326.

Under a sale on approval unless agreed otherwise, title does not pass to the buyer until acceptance. UCC 2-327.

The buyer cannot accept until after he passes a NICS check in his home state.

Conclusion: Title on the firearm does not pass to the buyer until after the buyer passes the NICS check in his home state.

"Sale" or "purchase" means a transfer of title or possession of tangible personal property when done or performed for consideration. Texas 151.005.

"Tangible personal property" means personal property that can be seen, weighed, measured, felt, or touched or that is perceptible to the senses in any other manner. TX 151.009.

"Taxable item" means tangible personal property and taxable services. TX 151.010.

A tax is imposed on each sale of a taxable item in this state [Texas]. TX 151.051

Conclusion: A firearm is tangible personal property.

Conclusion: Since title passed to the buyer in his home state, a sale has occurred in his home state.

Conclusion: Since a firearm is tangible personal property, a taxable sale has occurred.

Conclusion: Sales tax is due on the firearm.

Agency is a relation created by express or implied contract or by law, whereby one party delegates the transaction of some lawful business with more or less discretionary power to another, who undertakes to manage the affair and render to him an account thereof.

If a unlicensed person wants to purchase a firearm from an FFL in his place of business, by law the unlicensed person must pass a NICS check before the firearm can be sold. If a unlicensed person from out of state wants to purchase a firearm from an FFL, the FFL must by law send the firearm to an FFL in the unlicensed person's home state. Before the sale can be completed, by law the unlicensed person must pass a NICS check conducted by the FFL in the unlicensed person's home state.

Conclusion: By law, the out of state FFL delegates the transaction of lawful business (conducting the NICS check, which he does for sales in his state) to the FFL in the unlicensed person's state, making the unlicensed person's FFL the agent of the out of state FFL.

The owner or former owner of tangible personal property, a factor of the owner or former owner, or an agent of the owner, former owner, or factor shall collect the sales tax and add the amount of the tax to the sales price of the tangible personal property if the person delivers the property to a consumer in this state or to another person for redelivery to a consumer in this state under a sale of the property that is not a sale for resale and that is made by a seller not engaged in business in this state. TX 151.052.

Conclusion: Since the unlicensed person's FFL is an agent of the out of state FFL, the unlicensed person's FFL shall collect the sales tax.

As to not telling the FFL that it was a purchase, all the local FFL has to do is call the out of state FFL or individual. Lying to avoid the payment of a sales or use tax may be a crime.

 

[ajacobs]

I don't know the answer and I am sure there are many depending on interpratation and state law.

But here is some problems I would find with your logic:

I can think of a dozen circumstances where you obtain ownership without taking possesion at the time that would be the equivelent.

Here are a couple: I buy a used car, I pay for it and the seller gives me a receipt. It is still my car before I go and get the title in my name.

I purchase a big mac and pay before I get the big mac, patiently waiting for number 82 to be called, if I never get the big mac I do have recourse.

Conclusion: An out of state FFL does not have the power to transfer title to an unlicensed person until after the unlicensed person passes the NICS check in his home state.

The ffl is not passing title, only being paid for conducting the Nics and other services. The title passes when

A sale consists in the passing of title from the seller to a buyer for a price. UCC 2-106.

The receiving ffl is neither seller nor buyer.

The buyer cannot accept until after he passes a NICS check in his home state.

I don't think this is true in terms of contract law, if for example I buy a handgun and I am delayed on the NICS, the Handgun (directly from a dealer not shipped from out of state) is still mine and title has transfered even though I have not received it yet. If after the check finially comes in ok and I have now decided I no longer want it, the FFL is under no obligation to give me a refund (assuming they don't have a stated refund policy)

Like I said at the begining I am certainly no expert and I don't know the answer. My intent is not to nitpick you stream of logic, just to try and put this reacurring issue to bed.

 

[Cawdor]

ajacobs - I don't think that your used car or Big Mac examples apply. The question is not when you take possession, but when title - the right to possession - passes. The problem is that a buyer must pass a NICS check before he can take title. You don't have to pass a NICS check to take title to a Big Mac.

You are confusing the out of sale FFL - the person trying to sell the gun - with the local FFL - the person who oversees that transfer. Someone is trying to sell the gun. The line of reasoning that I have suggested does not require that the local FFL to own or purchase the gun, only that he be the legal agent of the owner.

I don't think this is true in terms of contract law, if for example I buy a handgun and I am delayed on the NICS, the Handgun (directly from a dealer not shipped from out of state) is still mine and title has transfered even though I have not received it yet. If after the check finially comes in ok and I have now decided I no longer want it, the FFL is under no obligation to give me a refund (assuming they don't have a stated refund policy)

The FFL is under no obligation to give you a refund because title passes when you pass the NICS. Assume that you want to purchase a gun from an FFL in your state. You pay him the money. He runs the NICS check. You don't pass. If paying the money passed title by itself, he would have sold a gun to someone who did not have the right to purchase it, an act that is prohibited by law. You would own a gun that you don't have the right to possess. By not passing title until after the NICS check, the FFL is protected from inadvertently selling the gun to the wrong person. Furthermore, once title passes, an item is used. In the example above, if the FFL took the gun back, he could not legally sell it as new.

The upshot is:

A gun purchased from an out of state seller may be subject to a use tax.

Local FFL's who collect sale tax on out of state transfers may be right. That some do not collect sales tax does not mean that they should not, just as not paying a use tax does not mean that you do not owe it.

I'd like to hear from an FFL who has raised this question with his attorney or his state's comptroller or attorney general. Barring this, enough has been said.

 

[ajacobs]

Well, I do see your logic, an am eager to find out the answer, It was late and I could have been been a little clearer. I guess the crux of the argument is when does title pass. While one camp would maintain that title can not pass until after the NICS check. I would maintain title passes prior to the NICS, once it has been paid for even if you can't take possesion at that time or don't take possesion at that time.

. The question is not when you take possession, but when title - the right to possession - passes.

I would argue that ownership is passed even though you did not take possesion. I realize in in most cases ownership is possed usually with taking possesion. But that is not always true and in fact happens often. IN my used car example i think I was being very similar to a handgun. I must buy and pay for a car but I cannot pick it up until I get plates for it and I can't get plates unless I have a drivers liscence. I must overcome a seperate hurdle before I can physically take possesion. I must pay the dealer, but I can't take possesion until I get the title in my name and plates, inspection etc. You interpration would have us believe that the dealer still owns the car (ant thus can do anything they want with it) until I show up with the right paperwork.

The FFL is under no obligation to give you a refund because title passes when you pass the NICS. Assume that you want to purchase a gun from an FFL in your state. You pay him the money. He runs the NICS check. You don't pass. If paying the money passed title by itself, he would have sold a gun to someone who did not have the right to purchase it, an act that is prohibited by law. You would own a gun that you don't have the right to possess. By not passing title until after the NICS check, the FFL is protected from inadvertently selling the gun to the wrong person. Furthermore, once title passes, an item is used. In the example above, if the FFL took the gun back, he could not legally sell it as new.

I don't want to introduce to many issues to make this to complicated but I don't think this is the case. IF you look at this like anything else other than a firearm I think it is more obvious when title passes. And the NICS law was not later and not a consideration in contract law. In the above example I would argue that you do own it. For example, I see a mint 1st gen SAA at crazy bobs bait and tackle for 100 bucks. IT is a killer deal. I pay and get a receipt but don't pass NICS. I forgot my wife got a routine restraining order during the seperation. That doesn't matter becuase I know it is worth $5000 and I didn't want it for myself anyway. I call up my friend and tell him I just found a great saa and I will sell it to him for 5000 he agree's and goes down to the shop and fills out the paperwork passes nics and is happy. Who gets the extra 4900. I do. Why. Becuase I have my receipt marked paid in full from bob. Now I may owe bob some fee's for doing a check. Should bob collect sales tax for this (instate) transaction. NO. He is not the one who collected the $4900 bucks.

Local FFL's who collect sale tax on out of state transfers may be right. That some do not collect sales tax does not mean that they should not, just as not paying a use tax does not mean that you do not owe it.

I certainly agree with you here. Frankly, while I am not saying all ffl's who collect the tax are like this, I think many are probally collecting the tax but not paying it. When a state requires you self report and pay the tax, which admitidly most of don't do, why take the extra step and create all the hassle for yourself. Especially when you don't know what the really paid for it, it could make you a assesory to avoiding to pay the entire tax due. I got a feeling it ends up in most FFL's accounts with the other "profit". Heck I routenly see FFL's with a seperate cash and Credit price still even though it is against the Cardholder agreements.

 

[Majic]

Ajacobs, in your used car senario you can take possession of the car after the title as been transfered to you. You can't legally operate it on a public street untill it has vehicle plates, insurance, and the driver be licensed, but you can have it towed anywhere you please.

 

[ACP]

Thanks for the input. I've had firearms transferred to me 2 or 3 times from out-of-state, never paid sales tax. This is the first time I've used this dealer, though. I'll check around with my regular crowd and see if they charge for out of state transfers, and why or why not.

 

[Cawdor]

ajacobs - Title is the right to possess. If the only condition for purchasing a firearm is payment, the dealer does not have a legal right withhold the gun from you after you have paid for it. However, if the passing NICS is a second condition to passing title (payment would be the first), the dealer has a legal right to withhold the gun until after the purchaser passes NICS.

A sale occurs when title passes. An FFL cannot sell, deliver, or transfer a firearm to someone until after the person passes a NICS check. If payment is sufficient to pass title - and passing title is a sale - an FFL has passed title, i.e., sold the gun, before the purchaser has passed NICS. He cannot do this legally.

Suppose A owns a book. B wants to buy a book from A. A says that he will sell the book to B for $1. B pays the $1, A gives B the book. Once B pays the $1, B has a legal right to the book. If A does not give B the book, B can sue A for possession. However, I don't think this example fits the sale of a firearm.

Here is the firearm example. C must approve the sale of any firearm done in the course of business. A has a business that sells firearms. B wants to buy a firearm from one of the firearms in the inventory for A's business. A says that he will sell B the firearm for $1 (A's not interested in profit), subject to C's approval. (Although A owns the gun, A cannot sell it without C's approval.) B pays A the $1. C does not approve the sale. B would lose if he sued for possession because he could not show that both terms of the contract had been satisfied. B had paid the $1, but C did not approve the sale.

If you really want an answer to question of whether a local FFL can collect sales tax or use tax on the transfer of a firearm purchased from an FFL that is out of state, contact your state's attorney general or the department that is responsible for collecting sales tax. I would not do it by phone because you can't be sure that the person on the service line really understands the question. If you do it by letter, it is more likely to reach someone who knows the answer, though it will take longer.

Here is how I would do it. I want to buy a gun from a gun shop that is out of state because I can't find this gun locally. I pay the out of state gun shop for the gun. The out of state gun shop does not collect sales tax. Under Federal law, the out of state gun shop has to ship the gun to a local dealer. After I pass the background check performed by the local dealer, the local dealer gives me the gun.

Do I owe sales tax on the purchase?
Do I owe use tax on the purchase?
Is the local dealer required by law to collect the sales or use tax?
Please explain the legal basis for each of your answers.

 

[Graystar]

Here is a question: Is the gun sold before or after the NICS check? If the purchaser fails the NICS check, is he the owner of the gun? If he is not the owner until after the NICS check, where does the sale take place?

A gun is not a registered item, such as a car. Therefore, like anything else, it is technically owned by whoever possesses it.

As for the sales tax issue…states that collect sales tax are very serious about it and always have a use tax that equals the sales tax. I know for sure that the FFLs in Idaho are supposed to collect sales tax on the transfer of gun from an out of state retailer.

What I do is tell the FFL that the gun is mine and is simply being returned to me. Have the seller mail the paperwork to you so that all your FFL gets is a gun in a box. Then there’s no way to prove that you actually purchased the gun.

 

[ajacobs]

Well, I do realize it is a question of whether the ffl is an agent of the seller or not and a disagreement on when possesion takes place.

I realize there are specific laws for carriers, but for a ffl to collect sales tax even though it may be owed is like the ups guy collecting sales tax on those nice flanel lined jeans I ordered from llbean (it's cold here).