If you enjoy collecting and shooting firearms, you may already know that most civilians in the United States can legally own and shoot an array of different guns without a federal-level license.
However, there is a firearm licensing scheme for specific categories of individuals and business owners in the gun business. One of the most coveted is the Class 3 firearms license. Learn all about this license, who can get one, what you need to obtain one, and what you can do with it.
What is a Class 3 License?
Although frequently used among firearms enthusiasts, the existence of a“Class 3 license is a common misconception. There is no such thing as a Class 3 license. “Class 3” refers to a Class 3 Special Occupational Taxpayer, a specific Federal Firearms License occupational class (FFL).
According to United States federal firearms laws, an FFL allows an individual to engage in the business of dealing, manufacturing, or importing firearms and ammunition and legally conduct interstate sales of firearms, as defined by the Gun Control Act of 1968.
There are multiple types of FFLs depending on the license holder’s primary activity: dealing (buying and selling), manufacturing, or importing.
For example, a Type 01 FFL means the owner is a Dealer in Firearms Other Than Destructive Devices. A firearms dealer may also engage in gunsmithing activities. Type 01 FFLs are commonly held by gun shop owners but not pawnshop owners or pawnbrokers. These establishments require their own Type 02 FFL.
A person manufacturing shotgun shells for commercial purposes needs a Type 06 FFL, making them a Manufacturer of Ammunition for Firearms Other Than Destructive Devices or Armor-Piercing Ammunition.
Special FFLs also exist specifically for collecting or manufacturing ammunition; these types of FFL are notable for disallowing their holders from engaging in the firearms business. Examples include Type 03 (Collector of Curios and Relics) and Type 06 (Manufacturer of Ammunition for Firearms).
What Does “Engage in the Business” Mean in the Firearm Industry?
In the context of federal firearms legislation, the term “engaged in the business” is legally defined in the US Code (18 USC 921(a)(21)) to mean any individual who generally “devotes time, attention, and labor” to the manufacturing, dealing, or importation of firearms and ammunition.
It is illegal to be engaged in the business without the appropriate Federal Firearms License. However, the law generally targets unlicensed businesses and does not cover private individuals wishing to sell or trade firearms in a private capacity. For more information, seek legal advice from a lawyer specializing in firearm legislation.
The Special Occupational Taxpayer Status
Holding an FFL allows you to run any business that generally fits the definition of “engaged in the business” of dealing/manufacturing/importing firearms and/or ammunition. However, holding an FFL is insufficient if you wish to deal, manufacture, or import NFA (National Firearms Act) items, also known as Title II weapons or NFA firearms.
NFA items are a class of firearms regulated by federal law (the National Firearms Act of 1934 and the Gun Control Act of 1968). These laws are primarily enforced by the Bureau of Alcohol, Tobacco, Firearms, and Explosives (BATFE or ATF), a federal law enforcement agency.
NFA items and NFA firearms include the following:
- Silencer, also known as suppressors or sound moderators: Note that the federal government legally considers silencers to be NFA firearms, despite being firearms accessories.
- Short-barrel rifle (SBR): Rifles with a barrel length of less than 16” or an overall length of less than 26”. For example, an AR-15 with a 14.5” barrel is a short-barrel rifle. Note that fitting pistols with shoulder stocks legally converts them into short-barreled rifles.
- Short-barreled shotgun (SBS): Shotguns with a barrel length of less than 18” or an overall length of less than 26”. For example, a Remington 870 with a 14” barrel is a short-barrel shotgun.
- Machine gun: A legal category of firearm generally encompassing any gun capable of shooting more than one shot with a “single function of the trigger” (i.e., a single trigger pull results in multiple shots fired).
This definition includes any fully-automatic firearms, bump stocks, and any portable firearm fitted with a bump stock. Firearms equipped with a burst-fire mode instead of full-auto, like the M16A2 rifle, are legally considered identical to fully-automatic firearms; both are legally machine guns.
- Destructive device (DD): A weapon is legally described as a Destructive Device if it is an explosive device, exploding ammunition, launchers for such ammunition, and firearms with a bore diameter larger than 0.500” (with certain exemptions, such as antique guns and shotguns legally exempted from that definition under the “sporting purpose” clause)
- Any Other Weapon (AOW): AOW is a catch-all category for other regulated weapons. AOWs include unusual firearms disguised as other objects, such as cane guns.
Paying the Special Occupational Tax
If you wish to deal, make, or import NFA firearms of any kind, you must already have a Federal Firearms License and then pay the Special Occupational Tax, which costs $500 a year. Paying this tax changes your status to that of a Special Occupational Taxpayer.
As with FFLs, there are multiple types of SOTs known as SOT (Special Occupational Taxpayers) Classes.
The SOT Class system is where “Class 3” comes from; however, each SOT Class requires you to hold a specific FFL type. Under the SOT system, there are three classes of taxpayers:
- Class 1 SOT: Sales and importation of NFA firearms; requires a Type 08 or 11 FFL.
- Class 2 SOT: Sales and manufacture of NFA firearms; requires a Type 07 or 10 FFL.
- Class 3 SOT: Can deal NFA firearms, no importation or manufacturing; requires a Type 01, 02, or 09 FFL.
For example, a gunmaker specializing in machine guns needs the FFL and SOT status to manufacture NFA firearms, such as Type 07 FFL with Class 2 SOT.
A Class 3 Dealer (Type 01 or 02 FFL holder with Class 3 SOT status) is not that different from a regular firearm dealer or gunsmith. These dealers can buy and sell NFA items without filing the corresponding ATF forms and paying a tax stamp with every purchase.
What About Antique Firearms?
As per the National Firearms Act, the term “antique firearms” typically refers to any firearm made in or before 1898 that is incapable of firing conventional rimfire or centerfire ammunition, such as a muzzle-loading coach gun.
According to the legal definition (Internal Revenue Code, 26 USC 5845), if a firearm meets the definition of an antique and does not meet the requirements to legally be considered a machine gun or a destructive, federal firearms laws do not consider them to be firearms, making them legal to possess for anyone aged 18 and over. However, some state and local laws may impose additional restrictions.
The Class 3 SOT Step-By-Step Guide
If you wish to become a Class 3 Special Occupational Taxpayer but don’t know where to start, our guide can help you navigate the laws and requirements.
Step 1: Become a Federal Firearms License holder
If you do not already possess a compatible FFL, you will need to obtain one. Class 3 SOT status allows you to buy and sell NFA items but not import or manufacture them.
Therefore, you will need one of the FFL types that grants you the status of a dealer:
- Type 01 FFL: Dealer in Firearms (Other than Destructive Devices).
- Type 02 FFL: Pawnbroker in Firearms (Other Than Destructive Devices).
- Type 09 FFL: Dealer in Destructive Devices.
Once you know which FFL type you want, you must meet all personal and business legal baseline standards:
- Be a US citizen or a legal permanent resident (Green Card holder).
- Be 21 years old or older.
- Do not meet the ATF’s definition of a Prohibited Person. For example, you must not be a convict, fugitive from justice, left the armed forces with a dishonorable discharge, illegal alien, convicted of domestic violence, or committed to a mental institution, and have never been convicted of a GCA violation.
- Have premises for your business. Your home address is eligible; most FFLs in the United States are home-based.
- Ensure local or state laws do not prohibit you from conducting firearm businesses at the given address due to zoning restrictions.
- Have a business intent. You must be able to show proof of business activity to the ATF during an audit because it is illegal to use an FFL exclusively for personal use. While transferring firearms from your business to yourself is legal, you cannot have an FFL for that sole purpose.
If you meet all the legal requirements, you must set up a legal entity for your business before sending an application to the ATF. The ATF application process is the same for all license types. You must complete an ATF Form 7, pay the application fee ($150), and send any required supplemental materials, such as a passport photo and fingerprint cards.
The ATF conducts an extensive background check on you and all other individuals listed as Responsible Persons, such as people you have listed as co-owners, business partners, management, and shareholders.
You will then receive an appointment for an interview with an ATF Industry Operations Investigator (IOI), who will review your application, verify that all your information is correct, and ensure you and your business are compliant with all relevant laws.
If the IOI determines that you meet all requirements and the extensive background check does not return disqualifying factors, the ATF completes your application, and you’ll receive your license within 60 days.
Step 2: Become a Special Occupational Taxpayer
Becoming a Special Occupational Taxpayer requires registering with the ATF by completing and sending an ATF Form 5630.7. You will need to choose the correct SOT Class for your FFL type.
The yearly Special Occupational Tax stamp varies depending on your business’ annual gross receipts. If you make less than $500,000 a year, your SOT tax is $500. If you make $500,000 or more, your SOT tax is $1,000.
SOT registrations expire on June 31 of each year, regardless of the time of application. To give yourself the best chance of success and avoid wasting money, you should send your application in July or August.
Once approved, you will be registered as an FFL holder with SOT status, allowing you and your business to deal in NFA items.
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Can I run a firearm dealer business from home?
Yes, the practice is known as “home-based FFLs.” Your business address is simply the same as your residential address. It is even possible to be an FFL and SOT from home.
You must also check your local laws, regulations, and ordinances to ensure that running a firearms business isn’t prohibited in your area due to zoning or homeowners association restrictions.
What is a “dealer sample?”
A dealer sample refers to a non-transferable NFA item, such as a machine gun registered on or before May 19, 1986 (the cutoff date for transferable machine guns). One of the benefits of becoming a Special Occupational Taxpayer is the possibility to possess dealer samples and enjoy modern machine guns and various other NFA items.
Dealer samples can only be possessed by FFLs with SOT and can only transfer from dealer to dealer (the other dealer must be another FFL/SOT) or to a law enforcement agency.
Are gun trusts an alternative to becoming an FFL/SOT?
A trust is a legal entity designed to hold property and assets for other individuals. A gun trust is a revocable trust designed to hold firearms, making the trust the legal firearm owner. The primary advantage of a trust is the possibility to add multiple designated people (the “trustees”) to the document, allowing them to use these firearms legally, as long as both the firearms and the trustees are registered in the gun trust document.
While a gun trust can be used to hold NFA items as well as Title I items (Non-NFA firearms), it is subject to the same legal restrictions as private individuals owning such items. It does not confer the right to “engage in the business” of dealing, manufacturing, or importing firearms and ammunition. For more information on gun trusts, consult a lawyer who specializes in firearm law.