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:

• DO NOT sell handloaded ammunition. If a gun blows up because of a faulty handload, then both the handloader and you could be held liable.
• As previously mentioned, do not allow children to handle merchandise–especially knives. Post signs.
• Do not sell relics, “wallhangers”, fire salvage guns, incomplete guns, or any guns that are otherwise questionable as unsafe to shoot unless the buyer first signs a statement that they they understand its condition and that they will not shoot that gun unless it has been first checked by a competent gunsmith.
• Do not sell any loose ammunition. It should at least be enclosed in a ziplock bag.
• Carefully double check all guns (both modern or antique) to insure that they are unloaded before they go out on your table. Even if the show does dot require plastic cable ties, use them anyway. Make sure that they are on every gun on your table before the show’s doors open to the public.
• Do not sell a gun to anyone who appears to be intoxicated or under the influence of a controlled substance.
• Do not make any claims about the history of a gun, or its originality, unless you can document it. Provenance is key, with antiques.

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:

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 letters.  This web site 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,

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.

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.

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