Novice thinking of 03 and 01 ffl

[Azzazle]

I'm new to gunsmithing, I've always loved guns and shooting. I been thinking of getting my 03 and or 01 ffl, getting you fix ems to fix up for either my collection, trade or sale in order to start and expand my own collection. The reason I'm hesitant is cause I'm new to it all, and the ffl licences are kinda expensive and I'm on a fixed income so I wanted to hear people's thoughts to find out if it's worth it?

I tried to ask century what their crates go for but refuse to tell me since I'm not a ffl holder so I can't really judge what a crate of you fix ems go for.

 

[kilimanjaro]

The FFL01 costs a few hundred dollars, then add the local zoning requirements, insurance, things like that.

The FFL03 is strictly a collector's license, it allows for your personal collection purchases of certain relics to be shipped to you across state lines. It's not useable as a gunsmith or dealer license substitute. You can sell an occasional piece out of your collection to enhance the collection, but it sounds like you are considering it as an adjunct to a business.

 

[Azzazle]

So for the fixing of firarms I'm going to need the 01 anyway? And not really a business, just a way to expand my collection.

 

[Frank Ettin]

...I been thinking of getting my 03 and or 01 ffl, getting you fix ems to fix up for either my collection, trade or sale in order to start and expand my own collection.....

If your plan is to buy bunches of guns to fix up, fix them up, and sell or trade the ones you don't want, there's a very good chance that the ATF (and quite possibly a federal court) will decide that you are engaging in the business of being a dealer in firearms and therefore required to have an 01 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. But from what what you said:

...getting you fix ems to fix up for either my collection, trade or sale in order to start and expand my own collection....

a judge could you to be a "dealer in firearms."

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):

     ...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, emphasis added):

     ...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.

 

[Azzazle]

Hmm so how much does a crate of you fix ems go for roughly? Looks like I'm going to need to get both 01 and 03, my concern is I'm going to get a crate and it'll cost a ton to fix em.

 

[Aguila Blanca]

If you get an 01 FFL, why would you need an 03?

 

[Azzazle]

Cause I think older firearms are simpler to fix?

 

[kilimanjaro]

A crate of what, exactly? You can fix up a bunch of Mosin-Nagant rifles and sell 'em for $125, not much more. You fix up a Yugo M48 and sell it for $200. Fix up a K98 or LE No. 4 and get $300 or a bit more. Even perfectly restored guns are going to suffer from the sales price of the original down the street, and the fact that it's not really a collector piece due to mixed parts and new finish.

A single band screw or sight slide can cost you $10 delivered. Put three or four replacement parts on a rifle and you've got $40 minimum in it, plus it's purchase price, plus stock refinish stains and papers, then you're looking at perhaps $40 in return for 20 hours of labor.

Let people bring you their rifles to fix up for a fee. Cleaning fees can be decent. Transfer fees can add up. The FFL01 is the way to go. An FFL03 would put you in hot federal water, and eliminate your entire proposed career.

You can find some fixers at the local pawnshop, or anywhere with a selection of Mosin rifles, try one of those and see how much work it is and what your return on labor and investment is. Then you'll find out why Century isn't doing this work themselves.

 

[Frank Ettin]

Cause I think older firearms are simpler to fix?

Makes no difference. An 01 FFL is the broader license.

The real problem is that to do what you apparently want to do as a hobby, buy quantities of old guns, fix them up, and sell some to support your hobby, will probably need to have a federal license to be a dealer in firearms -- if you do it with any frequency or in any quantity (and the law isn't clear about where the frequency/quantity cut off is).

But the 01 FFL is intended for someone engaged in a business, not for a hobbyist. Here's what ATF says about qualifying for a license:

Who is eligible for a firearms license?

An application for a Federal firearms license will be approved if the applicant:

• Is 21 years of age or over;
  
  
• Is not prohibited from shipping, transporting, receiving or possessing firearms or ammunition, nor in the case of a corporation, partnership, or association, is any individual possessing, directly or indirectly, the power to direct or cause the direction of the management and policies of the corporation, partnership, or association prohibited from shipping, transporting, receiving or possessing firearms or ammunition;
  
  
• Has not willfully violated the Gun Control Act (GCA)-CENSORED-or its regulations;
  
  
• Has not willfully failed to disclose material information or has not made false statements concerning material facts in connection with his or her application;
  
• Has premises for conducting business or collecting; and
  
  
• The applicant certifies that:
  
  
  1. the business to be conducted under the license is not prohibited by State or local law in the place where the licensed premises is located;
     
     
  2. within 30 days after the application is approved the business will comply with the requirements of State and local law applicable to the conduct of the business;
     
     
  3. the business will not be conducted under the license until the requirements of State and local law applicable to the business have been met;
     
     
  4. the applicant has sent or delivered a form to the chief law enforcement officer where the premises is located notifying the officer that the applicant intends to apply for a license; and
  
  
• if the applicant is to be a licensed dealer, the applicant certifies that secure gun storage or safety devices will be available at any place in which firearms are sold under the license to persons who are not licensees (“secure gun storage or safety device” is defined in 18 U.S.C. 921(a)(34)).

So to get an 01 FFL, you will need to satisfy any state or local requirements necessary to conduct the business of being a dealer in firearms, e. g., any state license required, a business license, and zoning laws.

Sure there are people who for a hobby collect old clocks or radios or fountain pens, etc., and who support their hobbies by buying old clocks/radios/fountain pens, fixing some and keeping the ones they want for their collections. But you don't need a federal license to be a dealer in clocks/radios/fountain pens. You do to be a dealer in guns.

 

[Azzazle]

Not exactly sure a crate, kinda hoping there's a mystery crate where you get what you get, and I'm not worried about labor. I pretty much do nothing all week. Like I'm not sure how many guns will be in a crate, in my mind it's like 10, but if I got a crate of m1s should have plenty of parts to get at least 2 or 3 keep one the other one or two m1s could go for a mosin, or k98 or something.

 

[carguychris]

The FFL01 is the way to go.

An 01 FFL is the broader license.

I won't disagree, but I'll bring up one footnote.

Some 'smiths who do really extensive work – building complete custom actions and suchlike – get an 07 Manufacturer FFL. This class of license allows the FFL to do everything an 01 Dealer does, but with the added ability to build custom firearms from scratch.

The application and qualifying criteria really aren't any more stringent than an 01, and the application fee is actually less ($150 vs $200), although the triennial renewal fee is greater ($150 vs $90). AFAIK the only other significant catch is that an Annual Firearms Manufacturing and Exportation Report (ATF F 5300.11) must be filed with the ATF every year whether or not any firearms have actually been made by the 07 FFL during that time period.

 

[Aguila Blanca]

Not exactly sure a crate, kinda hoping there's a mystery crate where you get what you get, and I'm not worried about labor. I pretty much do nothing all week. Like I'm not sure how many guns will be in a crate, in my mind it's like 10, but if I got a crate of m1s should have plenty of parts to get at least 2 or 3 keep one the other one or two m1s could go for a mosin, or k98 or something.

Except for the "crate" aspect, most of what you intend to do seems to fall generally (note the weasel words sprinkled in there) within the parameters of an 03 C&R license. A C&R is allowed to purchase old guns and then sell them for the purpose of enhancing his collection. I have always assumed (but I am not a lawyer) that covered such things as buying a three-pack of Mosin-Nagants, culling out the best one to keep, and selling the other two to free up funds to buy something else.

But I've never heard of any company selling crates of fixer-uppers, even to C&R licensees. And certainly not crates of M1s. Sarco, formerly of NJ and now in PA, often sells old C&R guns, and sometimes they are offered as "unsafe to fire, requires professional gunsmith repair." Usually, those are sold at a low price for one, and an even lower price per gun if you buy three. That's the closest I have ever seen to bulk lots of guns being sold -- never saw anything close to crates.

Keep in mind that both an 01 FFL and an 03 FFL have to keep a bound book, and every gun you get must be enterered in the bound book. Say you have an 03 and you buy that hypothetical case of ten guns. Each of the ten gets entered into the bound book. By mixing and matching parts, you get (per your example) three functional firearms, and you then pick the best one to keep and you sell two. Those two sales get noted in your bound book with a record of where they went.

So you now have seven firearms that are in your bound book, but useless. You need to get them off your bound book. I assume (yes, always dangerous) that the way to do this is to de-mil them (which I believe the BATFE interprets as cutting through the action in multiple places), and figure out how to properly document that they have been destroyed so you can enter that in your bound book.

Candidly, I think you need to first get a clearer idea of just what it is that you want to do, and then call your local BATFE office and have a long talk with one of the agents.

 

[T. O'Heir]

"...to start and expand my own collection..." Is that not what a C&R licence is for?
"...Fix up a K98 or LE No. 4 and get $300 or a bit more..." Cost you most of that to do. If you can find the parts. For example, Gunparts wants $25.40 for a No. 4 Rifle butt stock in 'fair' condition. No metal at all.
There are no crates of M1 Rifles.
"...tried to ask Century..." They'd be the last place to do business with. Century is well known for assembling rifles out of parts bins with ZERO QC. No headspace checks to ensure the thing is safe to shoot.
Trust me, if you're on a fixed income without other means of support, the firearms business is not for you. You will not get credit or credit terms and nobody will lend you money for tools or anything else.

 

[Frank Ettin]

....most of what you intend to do seems to fall generally (note the weasel words sprinkled in there) within the parameters of an 03 C&R license. A C&R is allowed to purchase old guns and then sell them for the purpose of enhancing his collection. I have always assumed (but I am not a lawyer) that covered such things as buying a three-pack of Mosin-Nagants, culling out the best one to keep, and selling the other two to free up funds to buy something else.....

The real problem is that it's not clear where the line between just being a collector and being a dealer is.

So I think that if one buys three Mosin-Nagant and sells two in a year or two, he's probably okay with an 03 or perhaps even no FFL. However, if one is buying several dozen and selling almost all them every year, he'll need an 01 FFL or will need to plan on spending some time in federal prison. But we can't say, based on the statutes and case law, where the line between "okay" and "prison" is.

 

[FITASC]

And just to add some other considerations, you need to factor in local business license costs and - if selling intrastate - to collect and remit sales tax.

 

[dogtown tom]

carguychris I won't disagree, but I'll bring up one footnote.

Some 'smiths who do really extensive work – building complete custom actions and suchlike – get an 07 Manufacturer FFL. This class of license allows the FFL to do everything an 01 Dealer does, but with the added ability to build custom firearms from scratch.

The application and qualifying criteria really aren't any more stringent than an 01, and the application fee is actually less ($150 vs $200), although the triennial renewal fee is greater ($150 vs $90). AFAIK the only other significant catch is that an Annual Firearms Manufacturing and Exportation Report (ATF F 5300.11) must be filed with the ATF every year whether or not any firearms have actually been made by the 07 FFL during that time period.

If you are manufacturing firearms, the 07FFL must also pay ITAR fees to the State Dept. Currently the ITAR fee is $2250...........every year.

 

[Azzazle]

Yeah that's why I'm not manufacturing, it's far from what I envision and way beyond my limits, I'm only going to limit myself to 100 a month, I've got tools for gunsmithing from a family friend who used to be a gunsmith, so I'm looking at 100 bucks a month for u fix ems and parts, maybe 150 a month if I got it.

 

[kilimanjaro]

Just for the record, a $100 to $150 a month budget for fixer rifles is going to get you exactly what you pay for, which is a pile of parts masquerading as a fixer rifle. You'll get one piece for that money, no more than two. More than that, you're getting scrap metal and firewood.

I'd take that budget down to the local gun show and dicker for a decent piece you can add to your collection with pride once you've worked on it. The key to the Collector's FFL03 is that you have a collection. That's the first thing you need to obtain. Were I a federal judge, buying a crate of a dozen rifles, keeping one or two for yourself, and selling the rest on would make you a dealer, if not the first crate, then definitely the second or third. When 85% of your collection is purchased to sell for profit, that's dealing, to me.

We're not trying to talk you out of doing what you want to do, but we do want to see you approaching this idea with something other than 'I want to buy a crate of guns and sell them'. That approach could get you into court explaining through an expensive lawyer that you really didn't intend on being a dealer, and will probably fail to work.

 

[Azzazle]

It's cool, I'm just asking around cause it seems like a lot, it's why I'm asking if it's really worth it. Plus places like century won't give me any idea on prices for the you fix ems, figured here people would know and best place to ask.

 

[Armorer-at-Law]

If your plan is to buy bunches of guns to fix up, fix them up, and sell or trade the ones you don't want, there's a very good chance that the ATF (and quite possibly a federal court) will decide that you are engaging in the business of being a dealer in firearms and therefore required to have an 01 FFL.

Technically, the ATF considers that "manufacturing." If you fix other peoples' guns, that's gunsmithing (and covered under a Type 1 FFL). If you buy guns, fix them up to increase their value, and then resell them, that's considered "manufacturing," and requires a Type 7 FFL.

Not every 07FFL needs to register for ITAR. Likewise, there are many manufacturers of gun accessories or parts who don't need an FFL at all, but do need to register for ITAR.