By Robert M. Hausman
During a seminar for importers and exporters conducted during the 2003 SHOT Show in Orlando, Florida, representatives of the Bureau of Alcohol, Tobacco, Firearms & Explosives (ATF) said the new electronic ATF Form E6, which was developed with industry input, is expected to be ready for use by the end of July.
Users will be assigned a user ID and password to access the new form through the Internet. While the new E6 form may be filed with ATF electronically, supporting documentation will still have to be sent by U.S. mail. Initially, the approved permit will be sent back to the applicant as a hard copy by U.S. mail. It is expected that within two years, the government will have the capability of returning approved permits electronically to successful applicants. The new Form E6 was designed to eliminate errors.
Firearm imports are increasing. In 2000, there were 1 million firearms imported. In 2001, this number jumped to 1.4 million, and for the first seven months of 2002 alone, the figure was 1.7 million. Last year, the nine examiners in the Imports Branch, processed 16,000 import permit applications.
Excise Tax Meeting During an Excise Tax seminar at the SHOT Show, partly sponsored by Glock, Inc., the regulations regarding liability for Federal Firearms and Ammunition Excise Tax on firearms and ammunition were reviewed by representatives of the U.S. Treasury Dept.’s new Alcohol & Tobacco Tax & Trade Bureau.
For the manufacturers’ excise tax, Title 27, Code of Federal Regulations, Part 53 defines the terms: “firearms;” “shells and cartridges;” and “importer.” But there are important differences between these excise tax definitions compared to these same definitions under Title 27, Code of Federal Regulations, Part 178 regulations under the Gun Control Act of 1968 (GCA), as amended, Title 18, U.S. Code, Chapter 44. For purposes of the manufacturers’ excise tax, the government reps noted as an example, muzzleloading firearms (black powder, matchlock, wheel-lock, flintlock, percussion cap, etc.) and firearms manufactured during or before 1898, are considered firearms. By comparison, these firearms are expressly exempted from the GCA definition of “firearm.”
Excise tax is not imposed on the separate sale or use of firearm component parts, including a frame or receiver; however, the sale or use of firearms in a knockdown condition (unassembled but complete as to all component parts) is taxable. But, under the GCA, a frame or receiver is a firearm.
For the manufacturers’ excise tax, shells or cartridges are designed, assembled and ready for use without further manufacture for use in a firearm. Component parts of shells or cartridges (i.e. projectiles, containers and powder) are not taxable. Blank ammunition, which lacks a projectile, is not taxed when sold or used by an importer. For purposes of the manufacturers’ excise tax, an importer is any person who brings firearms or ammunition (shells or cartridges) into the U.S., or who withdraws such articles from a customs bonded warehouse for sale or use in the U.S.
Under most circumstances, the person who causes and directs the importation will be liable for the excise tax upon sale or use. Consequently, the person who is listed on a government form as an importer may not be the importer for excise tax purposes. For example, a person obtains firearms and then pays a fee to a licensed federal firearms importer to bring in the firearms. In this case, the person (that is, the beneficial owner) is the person who paid the fee to the licensed importer and is thus responsible for the manufacturers’ excise tax upon the sale or use of the firearms or ammunition.
In circumstances when the first date of sale of an item in the U.S. is unknown, an importer may elect to use the following rule based on the date of manufacture: If manufactured prior to 1919, the first sale of the firearm or ammunition is presumed to occur before Feb. 25, 1919. If manufactured during 1919 or after, the first sale of the firearm or ammunition is presumed to occur on or after Feb. 25, 1919.
Exemptions for Foreign Manufacture
Firearms or ammunition will be exempt from tax if the importer can provide sufficient evidence of one of the two following events:
a. The firearm or ammunition was acquired and used for purposes of a stay outside the U.S. by an individual and will be used by that individual upon return to the U.S. (This applies only to an individual, not to an association, limited liability company, partnership or corporation).
b. The firearm or ammunition of a nonresident is temporarily imported for use in a specific event or action (i.e. any lawful sporting purpose, official law enforcement, or repair).
Domestic Manufacture Exemptions
Firearms or ammunition will be exempt from tax if the importer can provide sufficient evidence that one of the following four events occurred:
a. The firearm or ammunition was sold by a manufacturer to a U.S. military department during the periods of July 1, 1947 through January 5, 1951 and from July 1, 1951 through December 31, 1954.
b. The firearm, other than a pistol or revolver, or ammunition was sold on or after Feb. 25, 1919 through Dec. 31, 1955, by a manufacturer and the tax was paid.
c. The firearm or ammunition was sold on or after Jan. 1, 1956, by a manufacturer on which the tax was paid and the manufacturer or an exporter did not file and receive a refund for the tax.
d. The firearm or ammunition of a nonresident is temporarily imported for use in a specific event or action (i.e., any lawful sporting purpose, official law enforcement or repair).
The importer is responsible for gathering evidence to prove that a firearm or ammunition is exempt from the tax. Evidence may include historical information about the manufacture and use of the firearm or ammunition. If there is a question as to whether a firearm or ammunition is exempt from the tax, the Chief of the Tax & Trade Bureau’s National Revenue Center will examine all evidence and decide.
Figuring the Excise Tax
The federal excise tax is calculated at the rate of 10% of the sales price of pistol and revolvers. A tax of 11% is imposed on the sales price of other firearms and ammunition.
In general, the tax is figured by multiplying the percentage (10% or 11%) to the adjusted sales price at which the importer sells the firearm.
In addition to filing a tax return (ATF Form 5300.26, Federal Firearms and Ammunition Excise Tax Return), you may be required to file a tax deposit in addition to a tax return. Note: The 2003 Schedule of Due Dates for Federal Firearms and Ammunition Excise Tax Deposits and Returns is available free for the asking by International Firearms Trade subscribers in the IFT Library (request Document ‘E’ on page 8). Taxpayers must make their first deposit beginning with the period in which their tax liability exceeds $2,000 for the calendar quarter. The periods for the calendar quarter are semimonthly. The first semimonthly period is the first day of the month to the 15th day of the month. The second semimonthly period is the 16th day of the month to the last day of the month. The only exception is the second semimonthly period for the month of September. It is divided into two deposits, Sept. 16 through Sept. 25 and Sept. 26 through Sept. 30. Deposits and returns must be timely filed to avoid accrual of penalties and interest.
Those making deposits and filing tax returns must obtain an Employer Identification Number (EIN) prior to making deposits and filing tax returns. An EIN can be obtained by filing an application with the International Revenue Service on Form SS-4. The manufacturers’ excise tax on the sale of firearms and ammunition has been in effect in the U.S. since 1919.
Export Regulations Review
A review of some of the relevant regulations affecting exporters was also presented at the meeting.
Title 27, Code of Federal Regulations, Section 53.11 defines “exporter” as the person named as shipper or consignor in the export bill of lading. Title 27, CFR, Section 53.11 defines “exportation” as the severance of an article from the mass of things belonging within the U.S. with the intention of uniting it with the mass of things belonging within some foreign country or within a possession of the U.S. Based on these definitions, sales to Puerto Rico, the Virgin Islands, Guam, etc. are exportations and will be treated as such.
Direct Sales to Export Co.’s Permitted
Manufacturers may sell firearms and/or ammunition to the export company tax-free pursuant to Title 26 U.S.C. 4221 (a) (2) and Title 27, CFR, 53.133 (a). Section 4221 (a) (2) provides that a manufacturer may sell firearms tax-free for export or for resale by the purchaser to a second purchaser for export.
Since the term “exporter” is defined as “the person named as shipper or consignor in the export bill of lading.” Thus, if the export co. is shipping the firearms/ammunition prior to their resale to a foreign country, then these transactions could be considered sales for export and the exemptions would apply.
The exemption provided under Section 4221 (a) (2) would also apply if the export company were reselling the firearms/ammunition to foreign countries as a second purchaser, prior to their shipment out of the U.S. by the foreign country. Such a transaction would be a resale for export within the meaning of Section 4221 (a) (2).
In either case, in order to sell firearms/ammunition tax-free under 4221 (a) (2), the manufacturer must comply with the proof of export requirements set forth under 27 CFR, 53.131 and 53.133. As provided under Section 53.140(a), the manufacturer, and the export company as the purchaser, must be registered for the exemption to apply. Normally, if the export co. resells the firearms/ammunition to a second purchaser prior to their export, the second purchaser is required to be registered (27 CFR, 53.140[a]). However, any purchasing party to the transaction whose principle place of business is not in the U.S. is not required to be registered, provided the manufacturer obtains the evidence required by Sections 53.133 (b) and 53.141 (b).
Anytime a “middleman” is involved – as in the case of a contractor or subcontractor, the sales are not going to be tax-free. In order for articles to be sold tax-free, the sales have to be made directly to the tax-free entity. In any case where firearms or ammunition are purchased by a contractor and then transferred to a tax-free entity, the sale is not considered tax-free, but a refund claim could be made at a later date.
The Internal Revenue Code and supporting regulations do not require any specific signing authority documents from a taxpayer. For the taxpayer’s protection, anyone representing the company on FAET affairs is required to submit a Power of Attorney.
SAR’s Industry News columnist, Robert M. Hausman, is also the editor and publisher of the small arms industry’s two most respected business-to-business publications – The New Firearms Business, a bi-monthly newsletter covering the marketing, legal and regulatory aspects of the domestic firearms industry. Published 22-times per year, an annual subscription to The New Firearms Business is just $110. Published monthly, The International Firearms Trade is of interest to those firms doing business abroad, such as importer or exporters, or those considering doing so. A subscription to the 12-page The International Firearms Trade costs just $70 for one year. To order either publication, send a check to made payable in the name of the desired publication (FT or IFT) to: P.O. Box 98, St. Johnsbury, VT 05819 USA.
|This article first appeared in Small Arms Review V6N10 (July 2003)|