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ATF Rules on Firearm Mfg.
Posted By: Scott Weber 02/15/2015 @ 01:35 PM

On January 2, BATFE issued its first ruling of 2015.  Identified as ATF Rul. 2015-1, it significantly expands the scope of activities that BATFE considers to be “manufacturing” for purposes of the Gun Control Act (GCA).  While BATFE claims this ruling is simply a “clarification” of their prior position taken in ATF Rul. 2010-10, 2015-1 is clearly an attempted expansion of the definition of manufacturing.

The GCA primarily regulates commercial actors in the firearm industry.  Only those “engaged in the business” of dealing, manufacturing, or importing firearms are required to have the applicable Federal Firearm License (FFL).  As applied to manufacturers, a person is “engaged in the business” of manufacturing firearms, and must therefore be licensed and serialize any firearm manufactured, when the person “devotes time, attention, and labor to manufacturing firearms as a regular course of trade or business with the principal objective of livelihood and profit through the sale or distribution of firearms manufactured.”  The GCA also makes an allowance for licensees who hold only “dealer” licenses to engage in common gunsmith activities including “repairing firearms or … making or fitting special barrels, stocks, or trigger mechanisms to firearms . . . .” 

In the ruling, BATFE goes through several contortions of the English language to reach conclusions that severely complicate the making of firearms for private (i.e., noncommercial) use.  Along the way, BATFE proposes two important thresholds in the manufacturing process.  First, when sufficient manufacturing is performed on a receiver blank, often referred to as an “80% receiver,” so that it legally becomes a “frame or receiver” of a firearm.  Unfortunately, the ruling does little to identify exactly when a receiver blank becomes a frame or receiver.  The second threshold is crossed when something that may already legally be a “frame or receiver” is made suitable, or more suitable, for use as a functional firearm.

According to the new ruling, “when a person performs machining or other manufacturing process on a blank to make a firearm ‘frame or receiver,’ or on an existing frame or receiver to make it suitable for use as part of a ‘weapon … which will or is designed to or may readily be converted to expel a projectile by the action of an explosive,’ that person has performed a manufacturing operation other than what is contemplated by the GCA of dealer-gunsmiths ….”  It’s unclear how this new threshold approach will play out in practice.  If each step is carried out by a different subcontractor, the ruling would seem to require that each frame or receiver so “manufactured” would have to be serialized and marked by each subcontractor.

The logic in the ruling is stretched especially thin where it describes when the “sale or distribution” of a firearm necessary to trigger the manufacturer licensing requirement.  BATFE claims a sale or distribution includes situations in which a gunsmith receives a firearm from a manufacturer, performs a “manufacturing operation,” and then returns the firearm to the same customer.  The ruling states:

BATFE claims a sale or distribution includes situations in which a gunsmith receives a firearm from a manufacturer, performs a “manufacturing operation,” and then returns the firearm to the same customer.Although licensed gunsmiths return firearms to their customers after performing the contracted work, the GCA does not consider this to be a sale or distribution of the firearms manufactured. This is because the returned firearm has only been repaired or temporarily received for custom work – it has not been machined in a manner or otherwise created or made suitable for use as part of a weapon. However, when a licensed gunsmith takes in a frame or receiver to perform machining or other manufacturing process, that gunsmith “distributes” a firearm to the customer upon return because that manufacturing activity results in the making of a different “frame or receiver” and also a “weapon … which will or is designed to or may readily be converted to expel a projectile” – both defined separately as a “firearm” under the GCA.

Unfortunately for gunsmiths, the ruling gives no guidance to determine the difference between “custom work,” which seemingly is not considered manufacturing, and “machining,” which is manufacturing (at least when one of the identified thresholds is crossed) and would therefore require a gunsmith to comply with all of the GCA’s requirements for licensed manufacturers. 

While the GCA’s requirements for obtaining a manufacturer’s license may not appear substantially more difficult than obtaining a dealer-gunsmith license at first glance, there are numerous requirements beyond obtaining the additional license.  Not only must a manufacturer obtain a slightly more expensive manufacturer’s license, but manufacturers are required to serialize and mark every firearm or receiver they manufacturer and the markings must comply with specific requirements in federal law.  Manufacturers are also subject to additional record keeping requirements beyond those required of a licensed dealer.  Perhaps most importantly for dealer-gunsmiths, if merely working on a firearm means that a new firearm is manufactured, the GCA would prohibit return of the “new” firearm to the owner without a background check, and, in the case of an owner who lives in another state, the “new” firearm must first be transferred to a licensed dealer in the owner’s state of residence.  On top of the GCA requirements, the International Traffic in Arms Regulations require anyone who manufacturers firearms to complete a costly annual registration.  With all of these additional costs, some dealer-gunsmiths could be forced to abandon their current gunsmithing work.

In addition to limiting the machining work that gunsmiths can engage in, the ruling claims that an FFL not licensed as a manufacturer or an unlicensed machine shop may not allow unlicensed persons to “initiate or manipulate a CNC machine, or to use machinery, tools, or equipment under its dominion or control to perform manufacturing processes on blanks, unfinished frames or receivers, or incomplete weapons.”  This portion of the ruling appears to require any business that rents out its machinery or tooling to ensure that the tooling is not used in any part of the manufacturing of a firearm or of a firearm frame or receiver.  It’s unclear how BATFE reaches this result without completely rewriting the GCA’s definition of manufacturing, which BATFE does not have the authority to do by formal regulation, much less an informal “ruling.”     

Although BATFE may have intended this ruling to act as a “clarification,” the new guidelines raise far more questions than they answer.  In fact, the only thing truly “clarified” by this ruling is that the Obama administration will continue to bypass Congress with more executive gun control measures. 

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