The following information and terms are presented as a general guideline and not intended to represent or portray in any way, shape or form: legal or business advice. Dealerease provides this information to interested current and/or future dealers who are seeking more information regarding the sale of firearms. please check with your local or state regulatory officials for specific information regarding your business.

Dealer Regulations

A firearms dealer is a person licensed by the federal government to engage in the business of purchasing and reselling firearms. Once licensed, a dealer may purchase unlimited quantities of firearms through the mail, at wholesale prices, without being subject to background checks or state waiting periods, if any.

Federal Law

Federal law makes it unlawful for any person except a licensed dealer to engage in the business of dealing in firearms. 18 U.S.C. § 922(a)(1)(A). As applied to a firearms dealer, the term “engaged in the business” is defined as:

a person who devotes time, attention, and labor to dealing in firearms as a regular course of trade or business with the principal objective of livelihood and profit through the repetitive purchase and resale of firearms, but such term shall not include a person who makes occasional sales, exchanges, or purchases of firearms for the enhancement of a personal collection or for a hobby, or who sells all or part of his personal collection of firearms.

18 U.S.C. § 921(a)(21)(C).

The Gun Control Act of 1968 established the federal licensing system for firearms dealers. According to the Bureau of Alcohol, Tobacco and Firearms (ATF), however, that system was “overly simple” from 1968 until 1993. Department of the Treasury, Bureau of Alcohol, Tobacco and Firearms, Commerce in Firearms in the United States (February 2000).

During that time, any person who was over 21, paid a $10 annual fee, had premises from which to operate, and was not prohibited from possessing firearms was issued a license. As a result, the number of federal firearm licensees (FFLs) soared, reaching a peak of 284,117 in 1992. Id. In 1993, ATF estimated that 46 percent of all FFLs conducted no business at all, but used their licenses to buy and sell firearms in violation of state and local zoning or tax laws. Id.

In 1993 and 1994, Congress adopted laws to strengthen the licensing system. The 1993 Brady Act increased the licensing fee to $200 for the first three years and $90 for each additional three-year period. That law also required applicants to certify that they had informed local law enforcement of their intent to apply for a license. 18 U.S.C. § 923(a)(3)(B), (d)(1)(F)(iii). The Violent Crime Control and Law Enforcement Act of 1994 required applicants to submit photographs and fingerprints, and to certify that their business was not prohibited by state or local laws, and would, within 30 days, comply with such laws. 18 U.S.C. § 923 (a),(d)(1)(F)(i),(ii).

The FFL population decreased substantially as a result of these reforms. By 1997, after the first three-year cycle of re-licensing under the new laws had been complete, the number of FFLs had dropped by 49 percent nationwide, to 107,554. As of December 1, 1999, that number had fallen to 103,845, the lowest number since 1969. Commerce in Firearms in the United States, supra.

According to ATF, the reduction in the number of FFLs has been beneficial because it has enabled ATF to inspect a higher proportion of licensees. Despite the enormous increase in the number of FFLs nationwide, the size of ATF’s inspection workforce has not significantly changed since 1972. As a result, in 1998 approximately 200 full time field inspectors were responsible for inspecting more than 100,000 FFLs. Id.

FFL Duties and Prohibitions

Once licensed, dealers are obligated to:

Initiate background checks on unlicensed firearm purchasers;

Maintain records of the acquisition and sale of firearms;

Report multiple sales of handguns (i.e., the sale of two or more pistols or revolvers to an unlicensed person within any five consecutive business days); and

Report the theft or loss of a firearm within 48 hours after the theft or loss is discovered.

18 U.S.C. §§ 922(t), 923(g)(1)(A), 923(g)(3)(A), 923(g)(6).

FFLs must also submit to a maximum of one ATF inspection per year to ensure compliance with federal record-keeping requirements. More frequent inspections are permitted if a federal magistrate has issued a search warrant or if the search is incidental to a criminal investigation. 18 U.S.C. § 923(g)(1)(A),(B). In addition, FFLs must respond to requests for information from ATF regarding the disposition of a firearm if such request is made during the course of a bona fide criminal investigation. 18 U.S.C. § 923(g)(7).

A FFL may not sell or deliver: 1) a handgun to a resident of another state; 2) a shot gun or rifle or ammunition for that firearm to a person the dealer knows or has reasonable cause to believe is under the age of 18; or 3) a handgun or handgun ammunition to a person the dealer knows or has reasonable cause to believe is under the age of 21. 18 U.S.C. § 922(b)(1),(3).

FFLs may temporarily conduct business at a location other than that specified on the FFL’s license if the temporary location is a gun show in the state specified on the license. 18 U.S.C. § 923(j).

State Laws

Some states have also adopted dealer regulations. In 1998, for example, Massachusetts adopted a law prohibiting residential gun dealers. According to a 1998 ATF random sample of FFLs nationwide, 56 percent of all dealers operated out of their homes. Commerce in Firearms in the United States, supra. Of the remaining 44 percent, 25 percent operated out of commercial premises that were gun shops or sporting goods or hardware stores. The remainder were located in businesses that are not usually associated with gun sales, such as funeral homes or auto parts stores. Id. Although many local governments have adopted laws prohibiting residential dealers (see Local Laws, below), Massachusetts appears to be the first state to have done so.

In Delaware, firearms dealers must conduct annual employee background checks to ensure that those individuals are not convicted felons or otherwise prohibited from possessing firearms. Employee background checks have also been adopted by many cities and counties in California.

In Connecticut, a dealer's business premises must be equipped with a burglar alarm that is connected directly to the police department. In addition, where the principal part of the dealer's business is other than the sale of firearms (e.g., a K-Mart), employees must complete a course on firearms safety and statutory procedures relating to the sale of firearms.

The State of California appears to have the most extensive dealer regulations in the nation. State law defines a firearms “dealer” or “licensee” as a person who has all of the following:

A valid federal firearms license;

Any regulatory or business license, or licenses, required by local government;

A valid seller’s permit issued by the State Board of Equalization;

A certificate of eligibility issued by the Department of Justice; and

A local license or letter from the duly constituted local licensing authority stating that the jurisdiction does not require any form of regulatory or business license and does not otherwise restrict or regulate the sale of firearms.

The dealer must also be included in the centralized list of licensees maintained by the Department of Justice.

California law also requires dealers to: 1) wait 10 days before delivering any firearm; 2) sell only those handguns that have passed safety and functionality tests and been identified on a Department of Justice list of approved handguns; 3) sell no more than one handgun during any 30-day period to an individual purchaser; 4) equip all firearms with a child-safety lock approved by the Department of Justice (beginning January 1, 2002); and 5) store firearms in a secure manner.

California has closed the “private sale” loophole by requiring all firearm sales to be processed by a dealer, or in counties with a population of less than 200,000, by the Sheriff’s Department.

Local Laws

Local governments throughout the United States have also adopted laws regulating FFLs. Cities and counties in California, for example, have adopted many types of dealer regulations. Those regulations:

Require dealers to obtain a local law enforcement permit or license;

Prohibit dealers from operating in residential neighborhoods or near other “sensitive” areas, such as schools, playgrounds and places of worship;

Require background checks of dealer employees;

Require dealers to record ammunition sales to discourage illegal purchases; and

Require dealers to obtain liability insurance to ensure that persons harmed by the dealers’ negligence will be adequately compensated.

Several state laws in California (including those requiring dealers to equip all firearms with a child-safety lock, limiting handgun sales to one per person per month, and prohibiting the sale of poorly made handguns) were originally adopted by local governments in that state.

More information can be found at www.firearmslawcenter.org