First to start off with, here are 2 links, and facts that discuss this.
http://www.atf.gov/firearms/faq/manufacturers.html#dealer-gunsmithing
ATF said:
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.
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.
6. A company acquires one receiver, assembles one firearm, and sells the firearm.
The company is not manufacturing firearms as a regular course of trade or business and is not engaged in the business of manufacturing firearms. This company does not need to be licensed as a manufacturer.
http://www.ttb.gov/firearms/manufacturers.shtml
TTB said:
1. Am I a manufacturer?
You are a manufacturer if you manufacture or produce a taxable article from scrap, salvage, junk material, new material, or raw material by:
•processing, manipulating, or changing the form of an article; or
•combining or assembling two or more articles.
[Refer to 27 CFR 53.11 (definition of manufacturer)]
2. If I manufacture an article and sell it in knockdown condition, am I liable for FAET?
Yes. If you manufacture an article and sell it in knockdown condition (unassembled but complete as to all component parts), you are liable for FAET.
[Refer to 27 CFR 53.11 (definition of manufacturer)]
3. If I purchase an article in knockdown condition and assemble it, am I liable for FAET?
If you purchase an article in knockdown condition and assemble it, your liability for FAET will depend on the following factors:
•the amount of labor, material, and overhead required to assemble the article; and
•whether you assemble the article for business or personal use.
[Refer to 27 CFR 53.11 (definition of manufacturer)]
The line between Gunsmith and Manufacturer can be a bit of a blur at times.
First, as you can see from the ATF faq above, section 6, mentions building and selling 1 (one) firearm, does not mean they are a manufacturer, but how do you know how many the FFL has built? Just going from memory here, there is no exact number of firearms that is the dividing line between gunsmith and manufacturer.
Second, going by the TTB above in bold, a FFL buying a firearm in knockdown condition, that they intend to sell to a customer, and then build said firearm for the customer to avoid the Manufacturing aspect may still be in hot water, because the feds want their money.
There is a 50 firearm exemption to the TTB now, but there again the question is how many firearms has your FFL assembled already? Link to the exemption is
http://www.ttb.gov/pdf/50gun_exemption.pdf
Also, which is important to note is ATF Rul. 2010-10
http://www.atf.gov/regulations-rulings/rulings/atf-rulings/atf-ruling-2010-10.htm
ATF Ruling 2010-10 said:
A dealer is “engaged in the business” of gunsmithing, as defined in 18 U.S.C. 921(a)(21)(D) and 27 CFR 478.11, when he/she receives firearms (frames, receivers, or otherwise) provided by a customer for the purpose of repairing, modifying, embellishing, refurbishing, or installing parts in or on those firearms. Once the work is completed, the gunsmith returns the firearms, and charges the customer for labor and parts......
Notice the bold part above, where it mentions "provided by customer" which means, from my understanding from speaking with ATF inspectors is that the FFL/Gunsmith does not supply all of the parts for the build.
What has been recommended locally, and what I feel is the safe way around this for both your FFL and yourself, is to buy part of the AR-15 kit from your FFL, and then buy the other part from another business. That way since your FFL isnt selling you the complete kit, and assembling it for you, there is no tax required either, and he can assemble it for you legally as well.
How the ATF determines if the FFL/Gunsmith is actually a Gunsmith or a Manufacturer, is also spelled out in ATF Ruling 2010-10.
To facilitate inspection and ensure that ATF can determine that a licensed dealer-gunsmith is not engaged in the business of manufacturing firearms for his own sale or distribution without a manufacturer’s license, licensees may take the following steps:
(1) maintain a copy of the current, active license of all contracted licensees;
(2) maintain a copy of the contract and all instructions for gunsmithing services rendered;
(3) maintain a copy of the invoices for gunsmithing services;
(4) timely and accurately reflect all firearms acquisitions and dispositions consistent with the contract for gunsmithing services rendered; and
(5) in the case of a licensed dealer-gunsmith, maintain required bound acquisition and disposition records for all gunsmithing activities separate from other dealer’s records.
Unless licensees take these steps, ATF may presume that a particular dealer-gunsmith is engaged in his own business of manufacturing firearms for sale or distribution without a manufacturer’s license, and take corrective administrative or other enforcement action.
The record keeping requirement is where the ATF will look and find out what is going on because if the Inspector comes in and notices the FFL/Gunsmith assembling alot of rifles the same or next day of a lower transfer, and also note from the gunsmithing invoice and instructions for services rendered show that on the same day the FFL/Gunsmith sold you all of the other parts along with the lower, they
may argue that the FFL/Gunsmith is a manufacturing firearms without a license.
The concern with the above beyond the FFL/Gunsmith vs Manufacturer, is that the FFL/Gunsmith may sell you the complete firearm kit, unassembled, and say, "hey, if I transfer this to you before I build it, I dont have to collect FAET, that saves you money, and after the paperwork is done I will build your firearm."
I know Bartholomew Roberts mentioned that a change in the law has affected this, but I am unfamilier with it, the above is the best I can offer for advice at this time.
