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TTBGov Tax-exempt/Tax-free Sales of Firearms and Ammunition by the Manufacturer, Producer or Importer

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Tax-exempt/Tax-free Sales of Firearms and Ammunition by the Manufacturer, Producer or Importer

Under certain conditions, a manufacturer, producer or importer may sell firearms and shells and cartridges (ammunition) tax-exempt or tax-free.  In general, the manufacturer, producer or importer will be liable for all taxes, including interest and applicable penalties, if all the requirements of the tax-exempt or tax-free sale are not met.

TAX-EXEMPT SALES:

Under certain conditions, manufacturers, producers and importers may sell firearms and shells and cartridges (ammunition) without payment of tax.  The Internal Revenue Code, Title 26, United States Code (U.S.C.), Section 4182 and Title 27, Code of Federal Regulations (CFR), Section 53.62 provide exemptions from the Firearms and Ammunition Excise Tax for the following:

  • (a) Firearms subject to the National Firearms Act.
    Tax does not attach to the sale of any firearm on which the tax imposed by Section 5811 of the Code (relating to tax ($200 or $5)) on the transfer of machine guns, short-barreled shotguns or rifles, or the like, has been paid.
  • (b)(1) Sales to the Defense Department.
    Tax does not attach to the sale of firearms or ammunition that are purchased with funds appropriated for a military department of the United States.  For this purpose the term “military department” means the Department of the Army, Department of the Navy, and Department of the Air Force.  Included in the Department of the Navy are naval aviation and the Marine Corps.
  • (b)(2) Sales to the U.S. Coast Guard.
    Title 14, U.S.C., Section 655 provides that no tax on the sale or transfer of firearms or ammunition (articles) may be imposed on such articles when bought with funds appropriated for the United States Coast Guard.
  • (c)(1) Small manufacturers, producers and importers. 
    Section 4182(c) of the Internal Revenue Code (Code) provides that the tax imposed by Section 4181 of the Code shall not attach to any firearm manufactured, produced or imported by a person who manufacturers, produces and imports less than an aggregate of 50 of those articles during the calendar year, regardless of when such articles are sold.
  • (c)(2) Controlled groups.
    All persons treated as a single employer for purposes of subsection (a) or (b) of Section 52 of the Code are treated as one person for purposes of the exemption described in paragraph (c)(1) above.
  • (c)(3) Applicability.
    The exemption described in paragraph (c)(1) applies to articles sold by the manufacturer, producer or importer after September 30, 2005.  Application of this exemption is based on the calendar year in which the manufacture, production or importation of the articles in question took place and does not depend on when the sale occurs.  In addition, each calendar year stands alone for purposes of applying the exemption.

    NOTE:  Based upon this exemption – no tax return (TTB Form 5300.26, Federal Firearms and Ammunition Excise Tax Return) or deposit (TTB Form 5300.27, Federal Firearms and Ammunition Excise Tax Deposit) is required to be filed by a manufacturer, producer or importer of less than 50 firearms during a calendar year.

    This exemption only applies to firearms and not shells and cartridges (ammunition).

An additional exemption is applicable to:

Sales to Federal Reserve Banks.

Title 12, U.S.C., Section 531 provides that Federal Reserve Banks shall be exempt from Federal, State and local taxation, except taxes upon real estate.

TAX-FREE SALES:

Manufacturers, producers and importers may sell firearms or ammunition (articles) without payment of excise tax under the following five (5) specific purposes or uses:

  1. TAX-FREE SALE OF ARTICLES TO BE USED FOR, OR RESOLD FOR, FURTHER MANUFACTURE - for use by the purchaser in further manufacture, or for resale by the purchaser to a second purchaser for use by such second purchaser in further manufacture.  (See Title 27, CFR 53.132.)

    An article shall be treated as sold for use in further manufacture if the article is sold for use by the purchaser as material in the manufacture or production of, or as a component part of, another article taxable under Chapter 32 of the Code.

    An article is used as material in the manufacture or production of, or as a component of another article if it is incorporated in, or is a part or accessory of the other article when the manufacturer sells the other article.

    In addition, an article is considered used as material in the manufacture of another article if it is consumed in whole or in part in testing such other article; e.g. shells and cartridges that are used by the manufacturer of firearms to test new firearms.  However, an article that is consumed in the manufacturing process other than in testing, so that it is not a physical part of the manufactured articles, is not considered to have been used as material in the manufacture of, or as a component part of, another article.

    A third purchaser is not entitled to obtain the article tax-free.
  2. TAX-FREE SALE OF ARTICLES FOR EXPORT, OR FOR RESALE BY THE PURCHASER TO A SECOND PURCHASER FOR EXPORT – for export or for resale by the purchaser to a second purchaser for export.  (See Title 27, CFR 53.13.)

    An article may be sold tax-free by a manufacturer if the person to whom the manufacturer sells the article intends to export or resell such article to a person who intends to export it.  An article may not be sold tax-free by the manufacturer for resale to a second purchaser who does not intend to export the article itself but plans to resell it to a third purchaser for export. 

    The exemption provided in Section 4221(a)(2) of the Code and of Section 53.133(a) ceases to apply on the first day following the close of the 6-month period which begins on the date of the sale of the article by the manufacturer, or the date of shipment of the article by the manufacturer, whichever is earlier, unless within the 6-month period the manufacturer receives proof that the articles were actually exported.  If, on the first day following the close of the 6-month period, the proof has not been received, the manufacturer shall become liable for tax at that time at the rate in effect when the sale was made but otherwise in the same manner as if the article had been sold by it on such first day at a taxable price equivalent to that at which the article was actually sold.

    (See Title 27, CFR 53.133(d) for discussion on acceptable proof of exportation.)
  3. TAX-FREE SALE OF ARTICLES FOR USE BY THE PURCHASER AS SUPPLIES FOR VESSELS OR AIRCRAFT - for use by the purchaser as supplies for vessels or aircraft.  An article may be sold tax-free in those cases where the sale of an article by the manufacturer is made directly to the owner, officer, charterer, or authorized agent of a vessel or aircraft for use as supplies for the vessel or aircraft.  (See Title 27, CFR 53.134.)

    An article may not be sold tax-free by the manufacturer to passengers or members of the crew of a vessel or aircraft. 
  4. TAX-FREE SALE OF ARTICLES TO STATE AND LOCAL GOVERNMENTS FOR THEIR EXCLUSIVE USE – to a State or local government for the exclusive use of a State or local government.  (See Title 27, CFR 53.135.)

    An article may be sold tax-free by the manufacturer under this provision only in those cases where the sale is made directly to a State or local government.  The term “state or local government” includes any State, the District of Columbia and any political subdivision of any of the foregoing.  An Indian Tribal government shall be treated as a State for purposes of exemption from the FAET only if the transaction involves the exercise of an essential governmental function of the Indian Tribal government.

    No sale may be made tax-free to a dealer for resale to a State or local government for its exclusive use even though it is known at the time of sale by the manufacturer and the article will be resold.

    A sale of an article to a State or local government for resale is not considered to be a sale for the “exclusive use” of the State or local government, and therefore, such sales may not be made tax-free.  Such sales are not exempt regardless of whether the resales are made to government employees, or the fact that the article is an item of equipment the employee is required to possess in carrying out his duties.  For example, pistols or revolvers may not be sold tax-free to a State or local government for resale to its police officers.

    **Political subdivisions can be any county, city, borough, incorporated town, township, school district, vocational school district, or county institution district. Criteria is set forth by statute in each state and/or city.  Therefore, to determine if an entity comes under the definition of “political subdivision” it would be necessary to make this determination on a case-by-case basis.
  5. TAX-FREE SALES OF ARTICLES TO NONPROFIT EDUCATIONAL ORGANIZATIONS – to a nonprofit educational organization for its exclusive use.  (See Title 27, CFR 53.136.)

    An article may be sold tax-free by the manufacturer to a nonprofit educational organization only if the sale is made directly to such organization.  (See Title 27, CFR 53.136(b) for the definition of the term “nonprofit educational organization”.)