Learning about FFL / buying and selling

[AZJames]

Hey all!

I recently moved to AZ and have fallen in love w/ the used gun market - buying and trading used guns at shows and on sites like armslist.

Got me thinking it would be fun to do this at more scale - buy a gun, use it for a bit, trade it for another. More fun and cheaper than renting the different guns (as you can take them apart, clean them, study them, really get to know them, and keep the ones you really like). You can also turn a little profit if you're patient. So I was thinking of looking around at other states and buying used guns and having them shipped to an FFL dealer.

My question - at what point should I worry about getting an FFL? I plan on having guns shipped to them. I also plan on having and work aside from cleaning done buy a licensed gunsmith. All I will be doing is conducting the private buying/selling.

Is that something I would need an FFL for? I mean if I'm flipping a few guns a month and making a little money, will they say I'm running a business? Or since private sales are completely legal in my state as long as any shipping and any gun work is done by a licensed person will I be OK? Ideally I can make this hobby a little profitable and fun, but I'm not looking to buy factory made arms and really be a dealer of guns. So I'm not sure where the line is.

Thanks!

 

[Aguila Blanca]

Got me thinking it would be fun to do this at more scale - buy a gun, use it for a bit, trade it for another. More fun and cheaper than renting the different guns (as you can take them apart, clean them, study them, really get to know them, and keep the ones you really like). You can also turn a little profit if you're patient. So I was thinking of looking around at other states and buying used guns and having them shipped to an FFL dealer.

My question - at what point should I worry about getting an FFL?

You should get an FFL when you make a profit. An FFL (other than a C&R FFL) is for people who are in the business of buying and/or selling firearms. I'm not a lawyer and I don't work for the BATFE, but it seems to me that as soon as you decide you're going to seek to make a profit ... you're in the business.

 

[johnwilliamson062]

YOur in the grey area and no one will give you a clear answer.
My only recommendation is, if you proceed without an FFL, keep track of your gun money, most easily through a separate bank account. Don't let the account grow too big and don't use it for anything other than guns, accessories, training, etc.

To get an FFL you have to be in the business, not just hobby trading. ATFE may not approve your FFL. It leaves people in the middle out in the cold. A rejection would tell you for sure, I guess.

 

[kilimanjaro]

You are considering flipping guns and making a profit. That's not swapping to better your collection. Just go ahead and apply for an FFL if you can meet the requirements.

 

[dajowi]

You want to get into the "used" gun market by acquiring used guns, using them even more, and then sell them as used guns?

I'm not sure that the "used" used gun business is a profitable business model.

 

[44 AMP]

Since the law requiring an FFL went into effect in 68, the operative phrase in the law that has (to date) been the determining factor is "engaged in the business" of dealing in firearms.

Now, here's the catch, the Sec Treas, though their minions the ATF (BATFE) get to decide what that is. IF you disagree with their definitions, you may get your chance to convince a court. IF the court agrees with you, yay! If the court agrees with the ATF, you are a felon looking at jail time, huge fines, and permanent loss of gun rights.

IN THE PAST, courts, and even the ATF itself used rational, reasonable distinctions to determine the difference between the hobbyist, and those "engaged in the business" illegally. Usually this was a combination of the number of arms transactions, and the INTENT to make a profit. When it is determined that profit is the primary intent (whether or not you actually make a profit), you are engaged in the business.

If the profit is your primary, or a substantial part of, your income, you are likely "engaged in the business".

You ARE allowed to make a profit on sales as a hobbyist. Nothing illegal about that. You should document it, and report it as income, and pay the appropriate taxes on it, but it is allowed. Making a profit, alone, is NOT the determining factor deciding if you are engaged in the business, although it can be a contributing factor.

To get an FFL you have to be in the business,

This is not exactly true. The order is wrong. Engaging in the business BEFORE you get an FFL is a crime. You apply for, and get, the FFL BEFORE engaging in the business. License first, then business after you are licensed.

You will have to state your intent to engage in the business to get the license, but you cannot be IN the business before you get your license, legally.

Buy, sell, swap guns as a hobby, even make a few dollars on one, or three, maybe let one or three go for a small loss, to get something else you want more, is ok. Doing it with the intent of making (or substantially supporting) your living income, without getting ALL the required Federal, state, and local licenses needed, is against the law. Don't be doin' it, and if you have doubts, get a real lawyer.

Internet advice, no matter how well meant, is worth what you pay for it, and sometimes, not even that.

Good Luck!

 

[AZJames]

Thanks for the advice and feedback. It's definitely confusing. I looked at the app and it says things on it like if you only plan on selling at a gun show, don't submit app. So it makes it seem like doing it as a private seller is OK.

At the same time I agree, if you make money, it is kind of a business. But I'm not looking to make serious money from this. I mean I've been able to find guns like a used p239 for $400. I gave it a deep cleaning. Used it. Like it, and for fun posted and got some offers in the 600-650 range (didn't sell though, not sure I want to). But as I said this has got me thinking I could enjoy the used "used" gun market ;-). But again we're talking a $100 here and there, if that.

So, as folks have mentioned, it's a middle ground. After reading all this and doing research, and given the current political climate, I think I'm just going to get the FFL. I should be able to qualify - I have a CCW so I assume if you pass the requirements for that you meet the baseline for a FFL, now I just need to show I'm in business or want to be. Then get an address that is OK w/ a firearms business (I rent an apartment, so I know I'd need something that works as a business address for it). I believe those are the 3 things?

Again thank you for everyone's input! This is a great forum.

 

[johnwilliamson062]

You are considering flipping guns and making a profit. That's not swapping to better your collection. Just go ahead and apply for an FFL if you can meet the requirements.

That isn't how I interpreted the OPS statement, although it is sort of what he said. There are times I run across guns at a "steal" price and buy them even though I have never had much interest in that model. Often some minor cosmetic or repair issue involved. Especially so if it is a model of gun I have not owned or handled much before.
If OP tracks his mileage on these deals I bet he won't make much in "profit"

The order is wrong. Engaging in the business BEFORE you get an FFL is a crime. You apply for, and get, the FFL BEFORE engaging in the business. License first, then business after you are licensed.

Maybe not. You can't transfer any "firearms" before you get the license. My impression is you almost certainly will be inspected by ATFE before the license is granted. That means you have to have everything in order and ready to go before you get the license. Location, secure storage, payment system, records system, etc. etc. You can't just say, well I'm going to look for a place once I get the license. Depending how you re doing it those costs can be a lot or a little.

 

[AZJames]

"My impression is you almost certainly will be inspected by ATFE before the license is granted. That means you have to have everything in order and ready to go before you get the license. Location, secure storage, payment system, records system, etc. etc."

That's been my impression as well. From what I understand you don't need anything serious - a room that meets the requirements, I think you might need 2 safes - one for guns to sell, one for guns on hold. So there is some investment upfront. But I don't think it's much more than that.

That said, I'm very new to this and just beginning the research process so I could be completely wrong

 

[Frank Ettin]

...I ...have fallen in love w/ the used gun market - buying and trading used guns at shows and on sites like armslist.

Got me thinking it would be fun to do this at more scale ... You can also turn a little profit if you're patient. So I was thinking of looking around at other states and buying used guns.....

.... All I will be doing is conducting the private buying/selling.

...I'm flipping a few guns a month and making a little money,...Ideally I can make this hobby a little profitable and fun,... I'm not sure where the line is.
...

Based on the foregoing "sound bites" I strongly suspect that ATF will consider you to be a dealer in firearms and require that you have al 001 FFL. Under federal law someone needs a federal license to be a "dealer in firearms." Exactly when someone who sometimes buys guns and later sells guns becomes a "dealer" can be a hard question to answer.

1. Under federal law, one needs an FFL to engage in the business of a dealer in firearms. "Engaged in the business" is defined at 18 USC 921(a)(21)(C), emphasis added:

   (21) The term “engaged in the business” means—
   
   (A)...
   
   (B) ...
   
   (C) as applied to a dealer in firearms, as defined in section 921 (a)(11)(A), a person who devotes time, attention, and labor to dealing in firearms as a regular course of trade or business with the principal objective of livelihood and profit through the repetitive purchase and resale of firearms, but such term shall not include a person who makes occasional sales, exchanges, or purchases of firearms for the enhancement of a personal collection or for a hobby, or who sells all or part of his personal collection of firearms;...

   
   
   • The operative concepts are (1) devoting time, attention and labor; (2) doing so regularly as a trade or business; (3) the repetitive purchase and resale of guns; and (4) intending to make money.
     
     
   • "Livelihood" simply means:

     1: means of support or subsistence

     
     
   • Nothing in the statutory definition of "engaged in the business" requires that it be one's only business or means of support. It could be a side business, a secondary business or one of several ways you have of bringing money into the household.
     
     
     • What matters is that you're doing it regularly to make money. You don't even necessarily need to make a profit to be "engaged in business."
       
       
     • People go into business all the time and wind up not making money. It's not that they're not engaged in business; it's just that they're not very good at it.
     
     
   • But an occasional sale is not being "engaged in the business." Where is the the line between an occasional sale and the repetitive purchase and resale?
     
     
     • That's not clear from the statutes.
       
       
     • So the question becomes whether there's been any useful judicial clarification.
   
   
2. Let's look at what some courts have said.
   
   
   • The Third Circuit, in upholding a conviction of dealing in firearms without a license noted (U.S. v. Tyson, 653 F.3d 192 (3rd Cir., 2011), at 200-201, emphasis added):

     ...By the statute's terms, then, a defendant engages in the business of dealing in firearms when his principal motivation is economic (i.e., “obtaining livelihood” and “profit”) and he pursues this objective through the repetitive purchase and resale of firearms. Palmieri, 21 F.3d at 1268 (stating that “economic interests” are the “principal purpose,” and “repetitiveness” is “the modus operandi ”). Although the quantity and frequency of sales are obviously a central concern, so also are (1) the location of the sales, (2) the conditions under which the sales occurred, (3) the defendant's behavior before, during, and after the sales, (4) the price charged for the weapons and the characteristics of the firearms sold, and (5) the intent of the seller at the time of the sales. Id. (explaining that “the finder of fact must examine the intent of the actor and all circumstances surrounding the acts alleged to constitute engaging in business”). As is often the case in such analyses, the importance of any one of these considerations is subject to the idiosyncratic nature of the fact pattern presented...

     
     
   • And the Fifth Circuit noted (United States v. Brenner (5th. Cir., 2012, No. 11-50432, slip opinion), at 5-6, emphasis added):

     ...the jury must examine all circumstances surrounding the transaction, without the aid of a "bright-line rule". United States v. Palmieri, 21 F.3d 1265, 1269 (3d Cir.), vacated on other grounds, 513 U.S. 957 (1994). Relevant circumstances include: "the quantity and frequency of sales"; the "location of the sales"; "conditions under which the sales occurred"; "defendant's behavior before, during, and after the sales"; "the price charged"; "the characteristics of the firearms sold"; and, "the intent of the seller at the time of the sales". Tyson, 653 F.3d at 201.

     
     
   • The Sixth Circuit noted (United States v. Gray (6th Cir., 2012, No. 11-1305, slip opinion), at 8):

     ...However, "a defendant need not deal in firearms as his primary business for conviction." United States v. Manthey, 92 F. App'x 291, 297 (6th Cir. 2004)....

     
     
   • And in upholding Gray's conviction the Sixth Circuit also noted (Gray, at 8-9):

     ...We have previously held that evidence was sufficient to support a conviction under § 922(a)(1)(A) where it showed (1) that the defendant frequented flea markets and gun shows where he displayed and sold guns; (2) that the defendant offered to sell guns to confidential informants on multiple occasions and actually sold them three different guns on two different occasions; (3) and...that the defendant bought and sold guns for profit. See United States v. Orum, 106 F. App'x 972, 974 (6th Cir. 2004)...

     
     
   • In affirming a conviction of dealing in firearms without a license, the Ninth Circuit stated (U.S. v. Breier, 813 F.2d 212 (C.A.9 (Cal.), 1987), at 213-214, emphasis added):

     ...Courts have fashioned their own definitions of the term. For example, we have previously stated "that where transactions of sale, purchase or exchange of firearms are regularly entered into in expectation of profit, the conduct amounts to engaging in business." United States v. Van Buren, 593 F.2d 125, 126 (9th Cir.1979) (per curiam). In United States v. Wilmoth, 636 F.2d 123 (5th Cir. Unit A 1981), the Fifth Circuit stated that to prove the status of the accused as one engaged in the business of dealing in firearms, "the Government must show a greater degree of activity than the occasional sale of a hobbyist." Id. at 125. "It is enough to prove that the accused has guns on hand or is ready and able to procure them for the purpose of selling them from time to time to such persons as might be accepted as customers." Id.; accord United States v. Carter, 801 F.2d 78, 82 (2d Cir.), cert. denied, --- U.S. ----, 107 S.Ct. 657, 93 L.Ed.2d 712 (1986); United States v. Burgos, 720 F.2d 1520, 1527 n. 8 (11th Cir.1983)....

   
   
3. So the bottom line is that there really doesn't appear to be a safe harbor, i. e., a set of specific, clearly defined conditions which, if satisfied, definitely get you off the hook.
   
   
4. So if a federal prosecutor, looking at the totality of the circumstances and all the factors discussed in the various cases, decides that he can first convince a grand jury that there's probable cause to believe you're buying and selling guns as a trade or business, and then convince a trial jury beyond a reasonable doubt that you're buying and selling guns as a trade or business, he very well might prosecute you.

 

[Aguila Blanca]

And after Frank's excellent summation, we turn now to AZJames' original post:

I mean if I'm flipping a few guns a month and making a little money, will they say I'm running a business?

That sounds pretty "regular" to me, and it certainly sounds like the intent is to make money rather than to enhance a collection. IMHO, we're beyond "gray area" here.

 

[raimius]

As a non-lawyer I'd recommend applying. If you get an FFL, then you get clearer guidance on how to follow the law. If you get denied for not being engaged in business, it would be really hard to charge you, right after saying you didn't meet their standard...

 

[carguychris]

One minor wrinkle...

I agree with the general consensus that the OP's plan would clearly constitute "engag[ing] in the business" with no real grey area.

That said, the federal statute says that a person must have an FFL in order to conduct the "...repetitive purchase and resale of firearms..." – AND, not OR. Thus, it is theoretically perfectly legal to make repetitive purchases without a FFL IF no resale takes place. IOW an 01 FFL is needed to lawfully buy and sell with the principal objective of livelihood and profit, but not to merely buy.

That said, accumulating inventory for eventual resale without first obtaining the requisite state and local sales tax permit(s) often violates state laws regarding sales and use taxes, regardless of the type of merchandise involved. However, that's a whole 'nuther ball of wax. (I have exactly zero familiarity with AZ sales and use tax laws.)

Lastly, I suppose it's theoretically lawful under the federal statute to resell without purchasing, but the most common ways of obtaining merchandise without paying for it are highly illegal in and of themselves.

 

[Armorer-at-Law]

If you are intending to make a profit (even if you don't all the time or at first), the ATF considers you to be engaging in the business and you need an FFL.

I am a lawyer (which means I am generally capable of reading and understanding laws) and I have an FFL. I highly recommend you go to ffl123.com (I did) and get all the information you need and questions answered for $40. Yes, all the information is available for free elsewhere, but not all in one place and not with explanations about how it fits together. If $40 is too much to spend, then you shouldn't be thinking about operating a business.

To get an FFL, you have to have a "business premises." That can be you home, in many cases, but one of the biggest barriers to getting the FFL approved is local zoning. After that, it's a matter of navigating the state and local business regulations and tax compliance.

 

[johnwilliamson062]

As a non-lawyer I'd recommend applying. If you get an FFL, then you get clearer guidance on how to follow the law.

As stated above, you can be denied for not having a suitable premise even if you want to run a business. Armslist and such are usually parking lot deals. I know a dealer who lists on armslist and his biggest problem is people want to meet in parking lots half-way and won't accept that he legally has to do business at his listed premise.

You can also turn a little profit if you're patient

if I'm flipping a few guns a month and making a little money, will they say I'm running a business?

few
fyo͞o/
adjective & pronoun
determiner: few; adjective: few; comparative adjective: fewer; superlative adjective: fewest

1.
a small number of.
"may I ask a few questions?"
synonyms: a small number, a handful, one or two, a couple, two or three;

A few is 1-3. That is 36 a year. I am under the impression ATFE will not allow an FFL to keep their license if thy are a "kitchen counter" dealer doing that volume. Especially if many of the guns are staying in the holders possession.
Stating you CAN turn a profit isn't the same as pursuing an activity in order to make a profit.

use it for a bit,...More fun and cheaper than renting the different guns (as you can take them apart, clean them, study them, really get to know them, and keep the ones you really like).

If those are your main objectives and the "profit" is ancillary, I think you are in the grey zone. Grey zone meaning legal but you might have to prove that in court.
When I hadn't owned many guns I did this quite a bit. The first few years passing through 20 guns a year was not abnormal. Most of those were resold or traded not long after purchase. Now I have passed through most of those models that are available used locally, so not much point to it. Also much easier and cheaper to rent guns locally than ten years ago. It was almost impossible then. My main goal was to gain experience with different models. By the time I cleaned them up, ran a few mags through them, drove back and forth to meets, etc,; I wasn't making any money, but I sold most for more than I paid.

I had a 03 FFL with a separate bank "collection" account and all the money went through my "collection" account and no money came out for anything not gun related until I let my 03 FFL expire(which was after the non C&R trading was also done). ATFE can have all the fun with that they want.

If you want to buy and resell anything that comes up at a good price, including many of the same gun, aren't really interested in trying them out, etc., the activity is clearly trying to be "in the business." If "a few" means more than three there isn't much defense. I don't see much defense for "I bought ten AKs/Glocks and resold them at a small profit each"

 

[Frank Ettin]

...If those are your main objectives and the "profit" is ancillary, I think you are in the grey zone....

Considering that you haven't a clue what you're talking about and can cite no legal authority, what you think means nothing. Also, one's intent will be inferred objectively from his actions. His stated, subjective intent will mean little or nothing.

The point is that it will be the OP who is at risk. Lousy legal information won't hurt you, but it can hurt him if he's foolish enough to pay any attention to you.

 

[Aguila Blanca]

A few is 1-3. That is 36 a year. I am under the impression ATFE will not allow an FFL to keep their license if thy are a "kitchen counter" dealer doing that volume.

I have never heard that before. What I have seen reported, numerous times, is that the BATFE generally considers selling 6 or more guns per year to be "in the business of selling firearms."

 

[dogtown tom]

Aguila Blanca Quote:

Originally Posted by johnwilliamson062
A few is 1-3. That is 36 a year. I am under the impression ATFE will not allow an FFL to keep their license if thy are a "kitchen counter" dealer doing that volume.

I have never heard that before. What I have seen reported, numerous times, is that the BATFE generally considers selling 6 or more guns per year to be "in the business of selling firearms."

Where are those numerous reports?
ATF has NEVER stated a minimum number of sales in determining whether someone is engaged in the business of dealing in firearms.

In fact, there is at least one case where selling a single firearm resulted in an arrest.

A nonlicensee can sell hundreds of guns a year and not violate Federal law or be "engaged in the business. Or he could buy a single gun, immediately "flip" it and violate the law.

 

[Aguila Blanca]

Where are those numerous reports?

All over the Internet.

ATF has NEVER stated a minimum number of sales in determining whether someone is engaged in the business of dealing in firearms.

And that's precisely why I wrote "generally." It isn't written down in their regulations, but apparently there have been enough cases over the years that people who know more than I do about this stuff (or claim to) have determined that six per year is a sort of general test for "being in the business." It's definitely not a bright line, and I didn't offer it as such.

 

[FITASC]

All over the Internet.

Well, THAT makes it true!........

The best thing the OP can do is pay money to consult with a real attorney in his state who is knowledgeable about this aspect. His up-front consultation is a lot cheaper than his fees as a defense attorney.