July 22, 2015
Getting Started on Class III/NFA Licensing
Despite the growing consumer demand for suppressors and the thriving marketplace, I still hear dealers wondering whether buying and selling suppressors is legal. The answer to that question, just in case you are not aware, is a resounding “Yes” across the majority of the country these days. That’s a significant change in this product category from as little as five years ago, when most retailers would have said something similar to, “You can’t own a suppressor in this state, they’re illegal!” Most of your customers no doubt would have said the same thing.
The tide has shifted dramatically in recent years and this segment of our industry that was once largely misunderstood and ignored by the vast majority of dealers and consumers is now becoming as commonplace as seeing racks of AR15-platform rifles at retailers across the country. Currently, 41 states allow suppressor ownership and 37 of those states also permit hunting with suppressors (those 37 states that permit hunting with suppressors include Minnesota, when it’s legislation takes effect August 1, and Maine, when its legislation takes effect in mid-October. In light of this groundswell change, the perception of this product line within the firearms industry has gone from one of taboo to one of being just another helpful tool for shooting and hunting. They reign as one of the coolest products among today’s firearms aficionados — and we all know “cool” rings registers — quickly rising to the status of an essential tool on a par with eye and ear protection. Indeed, suppressors have finally become recognized as tools that help preserve hearing, and this is one of the reasons they’ve been “demystified” in recent years, their perception moving away from the often sinister picture painted by Hollywood.
With the rise in suppressor acceptance by so many states and a growing pool of consumers, new retailers every day are considering expanding their licenses to Class III status and capitalizing on the potential profits to be gained through the sales of NFA (National Firearms Act) firearms and equipment. Unfortunately, there’s a vast amount of misinformation and misconception regarding the complexities of being a Class III dealer that stop many in their tracks. It doesn’t have to be that way. While it’s absolutely true that staying compliant with the regulations that govern NFA products and paperwork is critically important, perhaps even more so than with your Type I 01 or 02 FFL dealer license, the process for obtaining a Class III license isn’t nearly as complex or intimidating as many believe — and the profit potential as it exists right now can make the extra work that is required to deal in these goods can very much be worth the extra effort. Let’s look at what it takes to get started:
Apply for your annual Special Occupancy Taxpayer (SOT) dealer license.
- Find the application here.
- The form may be filled out electronically or printed, filled out manually and sent to the address listed, along with your check for $500 (Class III – Dealer in NFA)
- SOT licenses are valid from July 1 through June 30 of the next calendar year. However, the $500 tax you pay to receive your license is not prorated
- You must renew your SOT every year and, just as it is when your Federal Firearms License (FFL) is about to expire, you will receive a renewal notice in the mail from ATF.
Paperwork and record retention planning
- You will need a bound book (Acquisition and Disposition Record Book), ATF Form 4473s and NFA Forms 3 and 4.
- Form-3 is used between SOT dealers (i.e., between manufacture and distributor and between distributor and dealer).
- Form-4 is used for transferring an NFA product to the qualifying consumers.
There are other forms you could come across when dealing in Class III merchandise, but for today’s purposes — getting you started — I’m going to focus on those listed here as, particularly the NFA Forms 3 and 4, as these are the ones you will use most often as a Class III dealer.
NFA Forms 3 and 4 Details
At the core of your new NFA business, the Form 3 for inbound product from your supplier and the Form 4 for product you sell, are the two pieces of paperwork you need to be most familiar with to be successful in your compliance with the NFA regulations. Let’s look at how you’ll handle these forms:
- Retain all Form 3s both by supplier and in chronological order by the date approved by ATF.
- Retain all Form 4 copies (customers receive and maintain the originals), along with their corresponding completed ATF form 4473s. These two should be filed together as a complete record of the consumer transaction and will be assigned a unique Transaction Serial Number.
While not required by the regulations, it is recommend that you treat your NFA business as a business within your business. This means your Class III products and transactions should have their own dedicated bound book specifically for NFA acquisitions and dispositions, i.e., separate bound books for FFL Type 01 or 02 (Gun Control Act or GCA) transactions. It is also strongly recommended that the physical storage of Class III products be separate from GCA merchandise, and that you maintain separate files that document in-process Form 4s.
NFA Form Approval Times
Perhaps the most common question asked by retailers considering expanding their business to include NFA products is how long it takes the NFA forms 3 and 4 to be approved. While the times do vary, on average NFA Form 3s typically take between six to eight weeks and NFA Form 4s between four and six months before you’ll receive ATF approval to proceed. (These delays are a result of an increased and high volume of NFA transactions currently taking place across the country, something that ATF’s NFA branch is working diligently to reduce with the resources it has available to it.) This is vitally important to understand and embrace in the form of establishing proper paperwork trails during the waiting process, written store policies for employees handling these transactions through their various checkpoints and in the creation of literature and other information important to helping your customers know what to expect when acquiring suppressors or other Class III firearms and related products.
As you can see, none of the above is complicated. In fact, it should be easy to see that if you choose to expand your business to include Class III products, getting started on the compliance end of things isn’t difficult and actually builds on processes and procedures you should already have in place as a firearms retailer. There is much more to learn, and we’ll be covering the ins and outs of Class III NFA compliance and marketing these products to your customers in the months to come. In the meantime, and for more information, please email NFA@Lipseys.com.
About the Author
Travis M. Glover is the Firearms Compliance and Risk Management Officer for Lipsey’s LLC, an NSSF member and one of this country’s leading wholesale distributors of firearms and accessories, including those such as suppressors that qualify as Class III merchandise. Glover has more than 20 years experience in the firearms industry, but over the past 11 years he has focused solely on developing and leading firearm’s compliance programs that have been sustainable and recognized as best-in-class. He currently sits on the Board of Directors for the American Suppressor Association, working closely with other industry leaders to further positive state legislation for legalization of suppressor ownership and hunting, in addition to the education of the FFL community regarding the many benefits of being licensed to sell Class III products.