If you love firearms and want to transform a passion into an exciting occupation, you may have considered becoming a licensed firearms dealer and running your own gun shop. However, there are many rules and regulations to follow.
Learn about the different firearms dealer licenses, what you can do with each, and how to find which license type fits you best.
Who is Legally a Firearms Dealer?
Whether you intend to manage a gun shop or run a pawn shop that buys and sells firearms, federal law strictly defines and regulates who is allowed to deal firearms for profit.
According to the Gun Control Act (18 USC § 923(a)), any individual or company that is engaged in the business of dealing in firearms and ammunition must be licensed by the federal government to operate their business legally. The document needed is a Federal Firearms License (FFL), of which multiple types exist, each intended for different kinds of businesses and activities.
In a non-binding guideline document, the ATF has clarified that a person or company is generally considered engaged in the business if they repeatedly buy, sell, and trade firearms for profit. Individuals who buy, sell, and trade items for their collection are generally not considered to meet that definition and do not need an FFL.
Types of Federal Firearms License
Although the ATF issues nine different types of Federal Firearms Licenses, only a handful are relevant to dealing in firearms. The other licenses are intended for collectors, manufacturers, and importers. The FFL types for dealers are:
- FFL Type 01: Dealer in Firearms Other Than Destructive Devices
- FFL Type 02: Pawnbroker in Firearms Other Than Destructive Devices
- FFL Type 09: Dealer in Destructive Devices
Although the three dealer-specific FFL types are the most common ways of becoming a firearms dealer, some non-dealer FFLs also allow you to buy and sell firearms legally. An example is FFL Type 07 (Manufacturer of Firearms and Ammunition), which enables you to manufacture and deal in firearms.
Most gun shops in the United States are Type 01, selling typical, non-federally regulated firearms (NFA items) to law-abiding American citizens in accordance with federal, state, and local laws.
A Type 02 license is intended mainly for pawn shops, allowing them to buy and trade firearms alongside the rest of their inventory. Type 02 license-holding pawn shops can buy and sell the same types of firearms as a Type 01 FFL business.
Type 09 licenses allow dealers to buy and sell items legally defined under the National Firearms Act as Destructive Devices, such as firearms with a bore diameter of over 0.500” with no sporting purpose exemption, explosives, launchers intended to fire explosives (e.g., grenade launcher, rocket launcher), and their ammunition.
How to Apply For a Federal Firearms License
If you are ready to become a firearms dealer, fill out ATF Form 7/7CR and send the application fee appropriate to the FFL Type you wish to obtain. For dealer FFLs, the cost is $200 for Types 01 and 02 and $3,000 for Type 09.
After the ATF receives and processes your application, the Federal Firearms Licensing Center (FFLC) in Martinsburg, WV, reviews it and conducts an extended background check of every individual listed on the application.
The FFLC then assigns an Industry Operations Investigator (IOI) to your case and conducts a face-to-face interview to discuss your application and ensure compliance with all applicable laws. Following the interview, the FFLC will issue your license within 60 days if everything is in order.
How to Deal Machine Guns and Other NFA Items
Although a regular Federal Firearms License of the correct type enables you to run a firearms business, specific kinds of weapons remain off-limits unless you meet additional requirements.
A typical FFL-holding business is only authorized to sell Title 1 weapons, which includes any pistol, rifle, or shotgun not regulated under the National Firearms Act. Any regulated firearm is known as a Title 2 Weapon or NFA item and may include any of the following:
- Silencers (legally considered firearms, despite being attachments)
- Short-Barrel Rifle (SBR)
- Short-Barrel Shotgun (SBS)
- Machine Gun
- Destructive Device
- Any Other Weapon (AOW)
The Special Occupational Taxpayer Status and How to Become an NFA Dealer
To become an NFA dealer in Michigan and start buying and selling NFA items, you must become a Special Occupational Taxpayer (SOT).
One of the requirements to become a SOT is to hold an appropriate Federal Firearms License beforehand. There are 3 SOT Classes: Class 1 for importers, Class 2 for manufacturers, and Class 3 for dealers. SOT Class 3 is open to holders of all three dealer FFL types: 01, 02, and 09.
The term “Class 3 firearm” is sometimes used to refer to Title 2 or NFA items. However, it is a misnomer; there is no such thing as a Class 3 firearm. This term refers to the Class 3 SOT status required to sell them, and gun owners often shorten it to “Class 3 dealer.”
To become a Class 3 SOT, you must fill out ATF Form 5630.7 and wait for an approval letter from the ATF. Although wait times can be lengthy, the only requirement for approval is to have a valid FFL. Once approved, you will be required to pay the Special Occupational Tax appropriate to your category. For Class 3 SOTs, the tax rate is $500 per year.
What Can I Do as an NFA Dealer with Class 3 SOT Status?
Possessing an FFL Type 01, 02, or 09 with SOT Class 3 status enables you to buy, sell, and build every type of NFA item.
However, Class 3 dealers must follow an additional process to acquire machine guns legally. They must possess a demonstration letter (demo letter) from a local, state, or federal law enforcement agency.
A Class 3 dealer in possession of a demo letter can order a machine gun from a manufacturer to demonstrate it to members of the agency that issued the letter.
This firearm is known as a “dealer sample.” After demonstrating it to the law enforcement agency, you may keep the firearm.
Receive Quality, Up-To-Date Firearms Education at IFA Tactical
IFA Tactical is committed to providing high-quality firearms education to law-abiding gun owners in Michigan and the rest of the United States. If you wish to know more about guns or have any questions or requests, contact us at (586) 275-2176.
Disclaimer: The information on this website is not intended to constitute legal advice and is provided purely for informational and educational purposes. Please contact a qualified Second Amendment lawyer for further information concerning firearms legislation.