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Running a Gun Show Business – Part 3

(Continued from Part 2. This installment concludes the article.)

Legal Issues

I’d be remiss if didn’t go over some of the statutory legality issues, liability issues, and tax issues associated with running gun show tables.

As most folks know, when they walk into a gun show they will be seeing two types of sellers with guns on their tables:  Professional dealers with FFLs, and casual unlicensed sellers. The FFL holders can buy and sell both new and used guns. Legally, they must display their license. Casual sellers like me can only buy or sell guns that have already been “papered”, or ones that never were papered (pre-1968 guns.) These can still be “new in box”, but they must be secondary market guns. Folks like me are mainly there at shows to trade, with the goal of upgrading and.or expanding our collections.

Casual secondary sales of firearms do not require a license or any background checks, in the 37 still free “private party sales” states. But there are sadly now 13 states that require background checks on the sales of ALL post-1898 guns. Gun shows in those states are now require the rigamaroll of selling through “transfer dealers”, complete with a “Mother May I? ” phone call to the FBI. In my opinion that is unconstitutional. But until that law gets overturned by the courts, it is still the law.

Applying for a FFL is not required under Federal law, unless you are “engaged in the business” of selling modern guns for your principal livelihood. Whenever the ATF is asked to define how many guns per year or what percentage of income constitutes “engaged in the business”, they are always evasive. They don’t want to go on record as doing so. I consider this a fear tactic, and it troubles me. But I cannot see any rational jury ever convicting someone of being “engaged in the business” if their weekend sales make up less than 20% of their annual income. For the record: I am not a “gun dealer” as my profession. I’m a novelist and blog writer.  Those are the sources of 95% or more of my income.  If I sell or trade guns occasionally at gun shows, that does not make be a “dealer.” This simply is not my principal livelihood. And remember, it is only sales of seriaiized, modern (post-1898) guns that count toward the “engaged in the business” percentage. Sales of any other merchandise (including pre-1899 guns, assorted parts, and 80% complete receivers) are not regulated under Federal law. So they are outside of Federal jurisdiction.

The Out-of-State Trap

The other crucial issue is out-of state sales. Ever since 1968, under Federal law the sales of seriaiized, modern  (post-1898) guns across state lines require completion of a Form 4473, under the auspices of a FFL. DO NOT EVER buy, sell, or trade a modern gun outside of your state of legal residence without going through an FFL.  Doing so could be prosecuted as a felony. It is noteworthy that the majority of ATF “busts” at gun shows involve out-of-state sales.  This often trips up people who own property in more than one state. Several times, I’ve had people from Cailfornia or Washington who own vacation homes in my state try to buy guns from me. I cannot do that! Legally, someone can only be the resident of one state. There is, however, an exception for active duty military service members, if they are posted at a Permanent Change of Station (PCS) fort or base.

For your own legal protection, it is important that you demand seeing the driver’s license of any buyer before any money changes hands. If the buyer can’t prove that he or she is not an adult fellow legal resident of YOUR state, then DO NOT conclude the transaction of a post-1898 “firearm.”  (Pre-1899 “antiques” are not classified as “firearms”, under Federal Law. So those can be transferred across state lines, with no restrictions)

Do not sell guns or ammunition to minors. The general rule is age 18 for long guns and 21 for handguns. But note that some states are now requiring that the buyers of semi-auto rifles also be age 21.

Do not sell a gun to someone who states that they are “buying for a friend”, or by their actions in any way indicates that they are not the actual buyer. That is classified as a “straw purchase”, and a crime under Federal law. Be warned: The ATF is notorious for running straw purchase sting operations at gun shows, complete with hidden microphones and cameras.

Do not get involved in any transaction with an unregistered machinegun, silencer, short-barreled rifle, short-barreled shotgun, a destructive device, or the parts than can be used to assemble them. If in doubt, then walk away!  Also, if selling someone a pistol with an ATF-approved arm brace, warn them that they cannot switch parts around, to create a short-barreled rifle.

Liability Issues

We live in a litigious society, so keep the following in mind:

State and Local Taxes

Most states collect sales tax. State laws vary widely, but there is generally a threshold of either the number of sales events per year, or a dollar threshold before you must register with the state to get a Seller’s License (sometimes called a Resale License), and make periodic sales tax payments.

If you attend an out of state gun show, then you may be asked to fill out a “one time seller” paperwork, and collect state and local tax on your gun show sales. This is a huge hassle, but we must Render Unto Caesar.  In my experience, most causal sellers who visit a show out of state just submit a token amount.

In most states, operating a business in anything other than your full legal names requires filing a Fictitious Name Statement, with the state,  There is usually just a small filing fee to do so.  Once you do, you should probably have a separate checking account in that business name, to keep those transactions separate, for tax purposes.

Accounting

If you operate a casual gun show biz, then you need to report your net income on both your state and Federal tax paperwork.  So this means keeping records of both acquisitions costs and sales prices, by date. It is the difference (your profit, after expenses) that is taxable income. You know the drill.  In some states, even the value of your inventory is taxed once per year.  So depending on where you live, you may need to keep quite detailed accounting, by date.

CIpher Tag Your Inventory

Like a lot of other gun show sellers, I use simple cardboard tags on strings, with a transposition cipher to keep track of acquisition costs of guns, barreled uppers, and other valuable items.  Unless you have a truly photographic memory, then cipher tagging is important.  This will keep your accounting straight, and most importantly the tags will keep you from inadvertently selling any item at a loss.

For many years, the now defunct Long’s Drugs store chain (now part of CVS) used what they called the “CHARLESTON code.” Their cipher tags would have the retail price in a large, bold font. And beneath, in a much smaller font, there would be a string of digits, ending with a hyphen and then a group of two to four letters.  Here is how their simplistic code transposed:

1 2 3 4 5 6 7 8 9 0
C H A R L E S T O N

Hence, a hanging tag with “LSL” written on the back would indicate that you had paid $575 for a gun.  (Your acquisition cost.)  For any merchandise that you bought by mail, you would of course include your postage or shipping cost and any FFL transfer fees paid.  So if a gun cost you $575 + $20 shipping + another $30 for the FFL fee, your cost would be $625. So you would tag it with the retail price (Say, $875, for a 20% markup) on the front of the tag  and then a cipher on the back of tag, in small letters you would write: “EHL”.  It is also a good idea to mark the acquisition date, so the cost cipher tag notation could read something like:  “EHL 10/20.)

You can create a transposition cipher of your own, by choosing a word or phrase at least 10 letters long for your cipher tags, with all unique lettersThis web site [1] is very useful for creating such ciphers.  I’d recommend a word with 12 or more characters, such as AMBIDEXTROUS. That cipher tag will give you a couple of extra “zero” letters, to confuse anyone who might try to crack your simple cipher, right on the spot. Hence,

1 2 3 4 5 6 7 8 9 0 0 0
A M B I D E X T R O U S

And then you could also use Y and Z as “filler” digits to throw in randomly anywhere in your cipher tag series. This is particularly handy for instances that a purchase price for a gun was three digits long, but where you are selling it a price that is four digits long. For example, you paid $930 (RBU), but you plan sell it for $1,175. So you would cipher tag the cost as  “RBZU”. That will make any buyer familiar with cipher tagging think that you paid at least $1,000 for that gun.

Whenever you finalize the sale a gun or other valuable item, be sure to snip off the cipher tag and save it, so that you can keep an accurate accounting.

Conclusion

What I’ve covered in this article is just the basics. Again, you must do your own research.  Look before you leap. Consult a few experts, study your references, and do plenty of comparison pricing before buying any inventory. Once you begin, I recommend that you get your family involved. Your kids that attend shows with you will learn some important life lessons about judging people’s character, how to recognize a scam (and a scammer), how to judge true value in guns/tools/antiques, respect for elders, Big City wariness (especially important for home-schooled kids), and much more. If nothing else, they will learn how to correctly count out change, how to politely interact in a business setting, and the basics of both business economics and cost accounting.

For some further reading on sales interactions, you might refer to an article that I wrote on bartering skills in SurvivalBlog, back in 2008. It is titled: The Savvy Barterer–References, Skills, and Tools for TEOTWAWKI Barter [2].

And for some details on how to evaluate the condition of used guns, see my February, 2019 article: Becoming a Savvy Pre-1899 Antique Gun Buyer [3].

Proviso: None of the foregoing should be considered legal advice. Be sure to consult an attorney and an accountant licensed in your state.

I’ve been attending gun shows since 1979 and renting table space at them since 1991.  But I still feel like I have a lot to learn. I look forward to reading your comments, down in the Comments section.

I hope that the foregoing pointers prove helpful. – JWR

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Comments Disabled To "Running a Gun Show Business – Part 3"

#1 Comment By Randy in SC and ME On October 27, 2019 @ 11:42 am

I was told by a BATF agent that, having homes in two states, I was a resident of whichever I was in at the time from the federal viewpoint. State law is apparently at odds with this. Certainly I have not been able to obtain a second ID, so purchasing firearms in the ‘other’ state has been problematical.
Of course, taking advice from federal employees is not without its risks. I understand that people have been prosecuted for following instructions they got directly from the IRS.

#2 Comment By James Wesley Rawles On October 27, 2019 @ 1:58 pm

I wouldn’t reply on that advice unless I had a LETTER from the ATF!

#3 Comment By Anonymous On October 27, 2019 @ 7:09 pm

Hi Randy,
I believe there is the domicile” aspect. As we have homes in both Washington State and Idaho, We decided to Domicile in Idaho after Washington state went sideways with their gun laws.. We have Idaho Drivers licenses,vote in Idaho, licensed our vehicles in Idaho, have hunting and fishing licenses in Idaho, pay Idaho income tax.. all proving we are Idaho residence..however, our jobs are in Washington State, we own a home in Washington State and spend about 50% or sometimes more of our time in Washington State. If it were ever to be challenged that we were somehow designated Washington Residence because of our home and jobs there, the overwhelming evidence of our Idaho ties would suggest otherwise. The benefits of owning two homes as you know, is you have the ability of exercising your option to choose which state you want to claim as your domicile. If one state is gun friendly and the other is not, the choice is obvious. If both states are gun friendly then you move on to things like taxes, or hunting/fishing regs if you hunt or whatever else is a priority in your life. But the point is,to pick one, so as you dont find yourself dabbling in things that can draw attention to you and your uneventful life. ,don’t complicate your life in ways that give them an excuse to use you as an example for the rest of the folks out there looking for ways around their control . ( be the grey man ) You can always switch it up if things change, Like we did, thats the beauty of it.

#4 Comment By Jason On October 27, 2019 @ 8:28 pm

As someone who deals with the Federal Government on a daily basis, I urge you to heed what I say. If you don’t have it, on a piece of paper (not e-mail, not on recording, on paper) with the letterhead of the respective agency, signed by someone in authority, IT NEVER HAPPENED and you are going to take the fall for it. Believe this like you believe the sun will rise in the East tomorrow.

#5 Comment By Charley Waite On October 27, 2019 @ 2:37 pm

When I worked in a pharmacy in the early 80s, we used BLACKHORSE as our “cipher” to mark cost of medications.

#6 Comment By sierra skier On October 27, 2019 @ 5:58 pm

In past years before living in the Redoubt I was a primary resident of California and obtained a seasonal resident ID in Nevada where we had a second home by meeting the Nevada requirements for that ID.
I was able to purchase firearms in Nevada with the seasonal resident ID, but some were illegal in California (the two I bought) so they didn’t cross the state line.
Thankfully those days are over for me now living in a more free state.

#7 Comment By Tunnel Rabbit On October 27, 2019 @ 8:51 pm

Here is a good YouTube channel for antiques:

[4]

#8 Comment By Ray M On October 27, 2019 @ 11:54 pm

How do you determine if you are selling to a person that is legally allowed to own a firearm or not? How to know so you do not get in trouble or offend a buyer? I have a few I want to sell so I can buy what I do want. I am in Montana, and have enough stuff for a table at our gun show. That is the only thing stopping me from doing it

#9 Comment By Tom in Oregon On October 28, 2019 @ 2:21 am

Ray, have them fill out a 4473 and keep it for your personal records. Or you could take it a step farther and do the transfer through a dealer.
Or you can trust your gut by asking a few serious questions.
(I’m not a lawyer and I didn’t sleep in a holiday inn last night.)

#10 Comment By Been there…. On October 28, 2019 @ 1:19 am

Ray, good question. There is no way to know. Fortunately the odds are vastly in your favor since surveys of prison inmates find that very few purchase at gun shows. I recently dealt with the same question when I sold my private collection. In Virginia, the preferred method is to ask the buyer if they have a Concealed Weapon Permit (CWP) since this permit requires the same background check that an FFL conducts. Obviously most do not have a CWP, so the standard routine is for the seller to verbally ask the buyer if they are allowed to own the item for sale. This will not prevent a liar from buying the gun, but it will show a court that you conducted due diligence to ensure the buyer was legal (even if they were not). In addition, I have had sellers tell me they intentional price their hardware high for two reasons. First, to give a lot of room to negotiate to make the buyer feel happy. Second, if they feel suspicious that the buyer is shady, all they have to do is not negotiate and the shady buyer leaves. Of course your high prices may scare off legitimate buyers, so you have to be quick to tell them you are willing to negotiate. You can also require buyers to provide a name and address in case the gun ever shows up at a crime scene. This will not stop a liar, but once again shows due diligence. This does tend to put off some buyers, but you need to do what your are comfortable with. For me, I ended up using an internet auction house since I had enough odd-ball stuff that I knew it would take forever to sell it by myself. The house charged a 20% fee, but I like to think they were able to sell everything for more than I could so I broke even. If you do end up selling at a show, be sure to decide ahead of time how you are going to handle the other dealers when they come to cherry pick your table in the hours before the show starts. At least you can feel confident that anyone that is a show vendor is legal.

#11 Comment By Ozark Redneck On October 28, 2019 @ 3:07 am

Ray: From the ‘horses mouth” (ATF)

[5]

Transfers of firearms by private sellers…

#12 Comment By TominAlaska On October 28, 2019 @ 1:55 pm

JWR: Thank you for a great 3-part series and the reader comments are also informative. Because of liability I no longer sell firearms to anyone that is not a relative or close friend. One time …. purely as a test ….. I asked our local police department if they could run a background check on a gun buyer. They scoffed a ‘no’ answer. (I dare say that most police agencies do not view guns per se as a problem).

I have more than enough gear for several shows. I’ll have to consider buying a table in the future.

#13 Comment By Sabel On November 1, 2019 @ 5:22 am

If a prospective buyer offers you their “Medical Marijuana” card as a government-issued ID, just say, “No!” as emphatically as possible.

Yes, we have had it happen at gun shows. More than once, I dare say. If someone shows up at a gun show, looking to buy a gun and doesn’t have their driver’s license with them, they really are too stupid to own a gun and should just go home.