Armory Sponsor
Posted: 4/24/2013 8:55:11 AM EDT
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So this is something I've always wondered about...what if an individual went through the legal hoops to get their licenses such as Class III and SOT so that they can legally build machine guns for themselves/company. From what I understand you still can't sell such weapons which makes perfect sense. However, I know these licenses and Special Occupation Taxes do have a timeline or expiration date. What happens to the firearms you've made once those licenses run out? Do you just simply keep them or do they have to be destroyed? Or do you not have a choice but to renew?
Reason I ask....Machine guns are insanely priced. It would seem way cheaper to jump through the hoops of getting your licenses and then building yourself a dozen or so machine guns for your own personal use. Then let everything expire and be content with what you made. Hell even building ten M16's would save someone almost 200k. Doing things the legal way, although taking a long time would save you hundreds of thousands of dollars. What do you think? The flip side...technically speaking the machine guns you build have no value considering you probably could never sell them. But it would save you money regardless... |
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So this is something I've always wondered about...what if an individual went through the legal hoops to get their licenses such as Class III and SOT so that they can legally build machine guns for themselves/company. From what I understand you still can't sell such weapons which makes perfect sense. However, I know these licenses and Special Occupation Taxes do have a timeline or expiration date. What happens to the firearms you've made once those licenses run out? Do you just simply keep them or do they have to be destroyed? Or do you not have a choice but to renew? Reason I ask....Machine guns are insanely priced. It would seem way cheaper to jump through the hoops of getting your licenses and then building yourself a dozen or so machine guns for your own personal use. Then let everything expire and be content with what you made. Hell even building ten M16's would save someone almost 200k. Doing things the legal way, although taking a long time would save you hundreds of thousands of dollars. What do you think? The flip side...technically speaking the machine guns you build have no value considering you probably could never sell them. But it would save you money regardless... They won't approve you for an FFL/SOT for personal use, otherwise everyone would be doing it. The point of allowing certain SOTs to manufacture new MGs is that they're potential dealers for LEO/Military, without that possibility then why would they give you the FFL/SOT? My understanding, non-transferables owned by an FFL/SOT going out of business have to be destroyed (turned in to the ATF?) or sold to another FFL/SOT. |
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So this is something I've always wondered about...what if an individual went through the legal hoops to get their licenses such as Class III and SOT so that they can legally build machine guns for themselves/company. From what I understand you still can't sell such weapons which makes perfect sense. However, I know these licenses and Special Occupation Taxes do have a timeline or expiration date. What happens to the firearms you've made once those licenses run out? Do you just simply keep them or do they have to be destroyed? Or do you not have a choice but to renew? Reason I ask....Machine guns are insanely priced. It would seem way cheaper to jump through the hoops of getting your licenses and then building yourself a dozen or so machine guns for your own personal use. Then let everything expire and be content with what you made. Hell even building ten M16's would save someone almost 200k. Doing things the legal way, although taking a long time would save you hundreds of thousands of dollars. What do you think? The flip side...technically speaking the machine guns you build have no value considering you probably could never sell them. But it would save you money regardless... They won't approve you for an FFL/SOT for personal use, otherwise everyone would be doing it. The point of allowing certain SOTs to manufacture new MGs is that they're potential dealers for LEO/Military, without that possibility then why would they give you the FFL/SOT? My understanding, non-transferables owned by an FFL/SOT going out of business have to be destroyed (turned in to the ATF?) or sold to another FFL/SOT. Ok that makes some sense. I was doubting you would be able to keep them. I figured no one went that route for a particular reason but wasn't quite sure what that reason was. Thanks for your help |
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My understanding, non-transferables owned by an FFL/SOT going out of business have to be destroyed (turned in to the ATF?) or sold to another FFL/SOT. That's incorrect. You can keep all non-transferable machine guns after giving up your SOT. If you ever sell them, they transfer tax paid on a Form 4, and only to an SOT with a demo letter or to LEO/Gov. *Correction: This only refers to pre-samples, and not anything converted after 1986. But it's true that the ATF will not allow you to get an FFL/SOT to enhance your personal collection. You must be able to show that you're "engaged in the business". I believe it's also considered felony tax evasion to use an SOT primarily to enhance a personal collection. |
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My understanding, non-transferables owned by an FFL/SOT going out of business have to be destroyed (turned in to the ATF?) or sold to another FFL/SOT. That's incorrect. You can keep all non-transferable machine guns after giving up your SOT. If you ever sell them, they transfer tax paid on a Form 4, and only to an SOT with a demo letter or to LEO/Gov. But it's true that the ATF will not allow you to get an FFL/SOT to enhance your personal collection. You must be able to show that you're "engaged in the business". I believe it's also considered felony tax evasion to use an SOT primarily to enhance a personal collection. Are you saying that if you give up your SOT, but keep your FFL, then you can own a post-sample? The reason I ask is I'm pretty sure that a civilian without an FFL/SOT has no legal means to own a post-sample. Pre-samples are a different story. |
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Are you saying that if you give up your SOT, but keep your FFL, then you can own a post-sample? The reason I ask is I'm pretty sure that a civilian without an FFL/SOT has no legal means to own a post-sample. Pre-samples are a different story. Update: You're correct. Only pre-samples can be kept by the FFL/SOT once the license is given up. I was mistakenly under the impression that anything remains in the SOT's possession after he gives up the license. |
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Are you saying that if you give up your SOT, but keep your FFL, then you can own a post-sample? The reason I ask is I'm pretty sure that a civilian without an FFL/SOT has no legal means to own a post-sample. Pre-samples are a different story. Update: You're correct. Only pre-samples can be kept by the FFL/SOT once the license is given up. Ok, that's what I thought but I wanted to make sure because you are obviously a dealer with some knowledge. I remembered this thread from a while ago. http://www.ar15.com/archive/topic.html?b=1&f=5&t=1374160 That's what got me thinking. |
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Ok, that's what I thought but I wanted to make sure because you are obviously a dealer with some knowledge. We primarily deal with silencers, so I'm not as up to date on the machine gun side of NFA stuff. We have a post sample AR, but no intentions of letting the SOT lapse. |
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You can sell any MG you make w/your SOT to LE, other SOT or Govt (domestic and foreign). Problem is no one will buy from you unless you design something really good and unusual. Another concern is the liability if you MG causes "problems".
There is nothing in the law to prevent you from getting an SOT for R&D purposes. |
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So this is something I've always wondered about...what if an individual went through the legal hoops to get their licenses such as Class III and SOT so that they can legally build machine guns for themselves/company. From what I understand you still can't sell such weapons which makes perfect sense. However, I know these licenses and Special Occupation Taxes do have a timeline or expiration date. What happens to the firearms you've made once those licenses run out? Do you just simply keep them or do they have to be destroyed? Or do you not have a choice but to renew? Reason I ask....Machine guns are insanely priced. It would seem way cheaper to jump through the hoops of getting your licenses and then building yourself a dozen or so machine guns for your own personal use. Then let everything expire and be content with what you made. Hell even building ten M16's would save someone almost 200k. Doing things the legal way, although taking a long time would save you hundreds of thousands of dollars. What do you think? The flip side...technically speaking the machine guns you build have no value considering you probably could never sell them. But it would save you money regardless... While everybody "thinks" its cheaper to become a manufacturer and build your own posties, if you look at it from purely a financial aspect (discounting any of the legal consideration) it doesnt make as much sense as you might think. So an FFL is roughly $50 a year, SOT is $500 a year, ITAR is $2750 per year so you are looking at about $3300 in cost bare minimum per year, assuming you already have a machine shop that is zoned for "manufacturing". (otherwise the ATF wont issue a license) So lets look at this over a 10 year horizon and you are in for $33,000 out of pocket minimum not counting the time value of your money. You build a handful of guns to "play" with as you are not really interested in being a real manufacturer for profit but just want to make yourself a handful of postie toys. Lets say you make yourself an HK Sear, M16, 1919, and an Uzi, which cost you $2000 in material, so now you are in for $35,000. When you are done you sell off the used parts kits for maybe $1000, leaving you with a loss of $34,000. Conversely, if you buy transferables of all of these for $60K ($15K M16, 15K 1919, $20K HK sear, and $10K Uzi) and decide to sell them in 10 years you get all your money back and quite possibly a nice return. So lets say you maybe sell them for $80K for a $20K profit. So, would you rather get to shoot machineguns for 10 years and get paid $20K to do it or lose $30K in the process. Obviously, the math can change if you absolutely have to have a mini-gun and don’t have a quarter mil to spare or want two dozen M16s to hang on your wall. However, for the average guy who wants a couple machineguns to shoot watermelons with on the weekends, transferables still make more financial sense. If you don’t have a place already zoned for commercial manufacturing, I think you could conservatively ad $12,000 a year to your $3K in SOT and ITAR fees and be in for a $150K loss over 10 years instead. If you plan on making guns to offset the cost than you need to take into account product liability insurance. You could also not pay the ITAR fee and just go with the SOT and hope you never get caught and prosecuted as many small time SOT Mfgs. do that as well. Just my 2 cents anyway. |
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So this is something I've always wondered about...what if an individual went through the legal hoops to get their licenses such as Class III and SOT so that they can legally build machine guns for themselves/company. From what I understand you still can't sell such weapons which makes perfect sense. However, I know these licenses and Special Occupation Taxes do have a timeline or expiration date. What happens to the firearms you've made once those licenses run out? Do you just simply keep them or do they have to be destroyed? Or do you not have a choice but to renew? Reason I ask....Machine guns are insanely priced. It would seem way cheaper to jump through the hoops of getting your licenses and then building yourself a dozen or so machine guns for your own personal use. Then let everything expire and be content with what you made. Hell even building ten M16's would save someone almost 200k. Doing things the legal way, although taking a long time would save you hundreds of thousands of dollars. What do you think? The flip side...technically speaking the machine guns you build have no value considering you probably could never sell them. But it would save you money regardless... While everybody "thinks" its cheaper to become a manufacturer and build your own posties, if you look at it from purely a financial aspect (discounting any of the legal consideration) it doesnt make as much sense as you might think. So an FFL is roughly $50 a year, SOT is $500 a year, ITAR is $2750 per year so you are looking at about $3300 in cost bare minimum per year, assuming you already have a machine shop that is zoned for "manufacturing". (otherwise the ATF wont issue a license) So lets look at this over a 10 year horizon and you are in for $33,000 out of pocket minimum not counting the time value of your money. You build a handful of guns to "play" with as you are not really interested in being a real manufacturer for profit but just want to make yourself a handful of postie toys. Lets say you make yourself an HK Sear, M16, 1919, and an Uzi, which cost you $2000 in material, so now you are in for $35,000. When you are done you sell off the used parts kits for maybe $1000, leaving you with a loss of $34,000. Conversely, if you buy transferables of all of these for $60K ($15K M16, 15K 1919, $20K HK sear, and $10K Uzi) and decide to sell them in 10 years you get all your money back and quite possibly a nice return. So lets say you maybe sell them for $80K for a $20K profit. So, would you rather get to shoot machineguns for 10 years and get paid $20K to do it or lose $30K in the process. Obviously, the math can change if you absolutely have to have a mini-gun and don’t have a quarter mil to spare or want two dozen M16s to hang on your wall. However, for the average guy who wants a couple machineguns to shoot watermelons with on the weekends, transferables still make more financial sense. If you don’t have a place already zoned for commercial manufacturing, I think you could conservatively ad $12,000 a year to your $3K in SOT and ITAR fees and be in for a $150K loss over 10 years instead. If you plan on making guns to offset the cost than you need to take into account product liability insurance. You could also not pay the ITAR fee and just go with the SOT and hope you never get caught and prosecuted as many small time SOT Mfgs. do that as well. Just my 2 cents anyway. SO this brings up another question. Wouldn't this be illegal? Wouldn't you need a FFL to make profit? If you're buying a transferable MG and selling later for profit, wouldn't that being engaged in firearm business without license? Also IRS would love this idea too... Just my 3 cents since people like to go by the books. ;D |
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Quoted: SO this brings up another question. Wouldn't this be illegal? Wouldn't you need a FFL to make profit? If you're buying a transferable MG and selling later for profit, wouldn't that being engaged in firearm business without license? Also IRS would love this idea too... Just my 3 cents since people like to go by the books. ;D No (21) The term "engaged in the business" means— (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; (D) as applied to a dealer in firearms, as defined in section921(a)(11)(B), a person who devotes time, attention, and labor to engaging in such activity as a regular course of trade or business with the principal objective of livelihood and profit, but such term shall not include a person who makes occasional repairs of firearms, or who occasionally fits special barrels, stocks, or trigger mechanisms to firearms; (22) The term "with the principal objective of livelihood and profit" means that the intent underlying the sale or disposition of firearms is predominantly one of obtaining livelihood and pecuniary gain, as opposed to other intents, such as improving or liquidating a personal firearms collection: |
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SO this brings up another question. Wouldn't this be illegal? Wouldn't you need a FFL to make profit? If you're buying a transferable MG and selling later for profit, wouldn't that being engaged in firearm business without license? Also IRS would love this idea too... Just my 3 cents since people like to go by the books. ;D Well the first part about getting a license making posties for yourself would be considered a gray area depending upon your intentions. Technically by the book you are supposed to be “in business” to have an FFL or any type, hence my disclaimer “Discarding any legal considerations” in my original psot. That said there are probably a lot of SOTs out there that don’t make any profit nor try very hard to be “in business”. I was just addressing the financial aspect, that people come to this forum routinely to ask “is there a loophole” to save me money if I want an M16. The unfortunately truth is that in most cases, a collector/hobbiest is not going to save money in the long run becoming a manufacturer to skirt FOPA. In regards to the second aspect of buying transferables, shooting them for 10 years, and then selling them for a profit if or when you get bored with them, there is absolutely nothing illegal about that. There is no law that says you can’t sell guns you purchased when you get bored with them and there is definitely no law that says when you sell a gun you have to sell it for what you purchased it for ten years back. From an IRS perspective if you sell any piece of property (gun, car, jewerly, tools, etc.) and make a profit it is considered income and need to be included on your return. |
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So this is something I've always wondered about...what if an individual went through the legal hoops to get their licenses such as Class III and SOT so that they can legally build machine guns for themselves/company. From what I understand you still can't sell such weapons which makes perfect sense. However, I know these licenses and Special Occupation Taxes do have a timeline or expiration date. What happens to the firearms you've made once those licenses run out? Do you just simply keep them or do they have to be destroyed? Or do you not have a choice but to renew? Reason I ask....Machine guns are insanely priced. It would seem way cheaper to jump through the hoops of getting your licenses and then building yourself a dozen or so machine guns for your own personal use. Then let everything expire and be content with what you made. Hell even building ten M16's would save someone almost 200k. Doing things the legal way, although taking a long time would save you hundreds of thousands of dollars. What do you think? The flip side...technically speaking the machine guns you build have no value considering you probably could never sell them. But it would save you money regardless... While everybody "thinks" its cheaper to become a manufacturer and build your own posties, if you look at it from purely a financial aspect (discounting any of the legal consideration) it doesnt make as much sense as you might think. So an FFL is roughly $50 a year, SOT is $500 a year, ITAR is $2750 per year so you are looking at about $3300 in cost bare minimum per year, assuming you already have a machine shop that is zoned for "manufacturing". (otherwise the ATF wont issue a license) So lets look at this over a 10 year horizon and you are in for $33,000 out of pocket minimum not counting the time value of your money. You build a handful of guns to "play" with as you are not really interested in being a real manufacturer for profit but just want to make yourself a handful of postie toys. Lets say you make yourself an HK Sear, M16, 1919, and an Uzi, which cost you $2000 in material, so now you are in for $35,000. When you are done you sell off the used parts kits for maybe $1000, leaving you with a loss of $34,000. Conversely, if you buy transferables of all of these for $60K ($15K M16, 15K 1919, $20K HK sear, and $10K Uzi) and decide to sell them in 10 years you get all your money back and quite possibly a nice return. So lets say you maybe sell them for $80K for a $20K profit. So, would you rather get to shoot machineguns for 10 years and get paid $20K to do it or lose $30K in the process. Obviously, the math can change if you absolutely have to have a mini-gun and don’t have a quarter mil to spare or want two dozen M16s to hang on your wall. However, for the average guy who wants a couple machineguns to shoot watermelons with on the weekends, transferables still make more financial sense. If you don’t have a place already zoned for commercial manufacturing, I think you could conservatively ad $12,000 a year to your $3K in SOT and ITAR fees and be in for a $150K loss over 10 years instead. If you plan on making guns to offset the cost than you need to take into account product liability insurance. You could also not pay the ITAR fee and just go with the SOT and hope you never get caught and prosecuted as many small time SOT Mfgs. do that as well. Just my 2 cents anyway. Can you change your FFL type from one year to another? Would seem to me that if you could then the scenario could change substantially. Go into business with a manufacturing FFL and pay ITAR for a year. Make a couple MGs that year, then switch to a Type 1 (or whatever the plain dealer type is) and only have to worry about maintaining your FFL and C3 SOT for the duration of ownership. Would lower the recurring costs substantially if this were possible. Using your example; Year 1: $3300 + materials for a couple DIAS and LLs, then a jig and drill press to drill out a handful of stripped lowers. Year 2 - 10: $550/yr 10 year cost: $8800 + materials. Naturally, I have no idea if this would work, nor knowledge of the workings of FFLs.... just something I've plotted about in the past. |
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Can you change your FFL type from one year to another? Would seem to me that if you could then the scenario could change substantially. Go into business with a manufacturing FFL and pay ITAR for a year. Make a couple MGs that year, then switch to a Type 1 (or whatever the plain dealer type is) and only have to worry about maintaining your FFL and C3 SOT for the duration of ownership. Would lower the recurring costs substantially if this were possible. Using your example; Year 1: $3300 + materials for a couple DIAS and LLs, then a jig and drill press to drill out a handful of stripped lowers. Year 2 - 10: $550/yr 10 year cost: $8800 + materials. Naturally, I have no idea if this would work, nor knowledge of the workings of FFLs.... just something I've plotted about in the past. I have heard of folks trying to do this (for shall we say “legitimate” reasons) and the ATF requiring them to get a new EIN for the Dealer SOT application and also requiring them to transfer them from one EIN while for demo letters for the transfer from the MFG to the dealer Entity when they asked what they should do with the posties they mfged. Others I believe have just changed FFL types one year and never mentioned the transfer implication to the ATF , just let it be and the ATF never noticed the change in FFL type or asked them to perform a transfer. However, I have no idea on the legality of something like this nor if it would pass muster with the ATF without a transfer and a demo letter if done in the light of day. But yes, the financial theory is sound as it allows you to shed the ITAR fee and requirement for MFG zoning. However, at a self-preservation level $60K seems cheap to me to try and willfully try some shenanigans like that and the repercussion that could follow. |
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This is why I love this site...I can ask a fairly complex question and there are so many knowledgeable people on here that can answer. It also goes to show you the complexity and utter stupidity the rules regarding firearms really are. So many rules, regulations, and taxes that it is almost risky to even attempt to try something legal.
Anyway the whole object of the thread was to see if there was any financial edge going the manufacturing route for a few years over dropping 20-30k in cash for transferables. Thanks for all of your input. |
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