Firearms, like most items purchased, enter into the consumer market through firearms dealers.
These dealers are the critical link between the manufacturer and the general public. Even though all
guns sold to the public originate with firearms dealers, dealers are subjected to very little federal
oversight. A firearms dealer doesn’t receive a ton of federal oversight, the same way you don’t pursue the first owner of your Camry because the coolants’ leaking.
Over 53,500 in the US currently have Type 1 Federal Firearms Licenses, which allow them to act
as gun dealers, and over 7,700 have Type 2 Licenses which allow them to buy and sell guns as
pawnbrokers. Federal dealer licenses are in high demand because a firearms dealer may purchase
unlimited quantities of firearms through the mail at wholesale prices without being subjected to the
background checks or any state or local waiting periods.
With such a stream of power being delivered to someone holding one of these licenses, what is
the federal law on dealer regulations? To be simple, federal law prohibits any person from engaging in
the business of dealing with firearms without a federal firearms licenses. “Engaged in business” is
defined as follows:
“[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.”
An individual who is selling one gun does not need to obtain one of these licenses, however, if an
individual plans to make a livelihood as a gun dealer, they must obtain one of these licenses per federal
The Gun Control Act of 1968 established the federal licensing system for firearms dealers.
According to the ATF, however, the system was too simple until 1993. Any individual over the age of 21
who has paid an annual fee (at the time $10), had premises from which to operate, and was not
prohibited from possessing firearms could be a firearm dealer. As a result, the number of federal firearm
licenses increased to a record high of 284,000 licenses in the United States. In 1993, the ATF estimated
nearly half of those licenses were not being used for business at all, but were being used to obtain
firearms in violation of state and local zoning tax laws. The Brady Act in 1993 increased the fee to $200,
required applicants to certify with local law enforcement of their intent to apply for a license, and the
Violent Crime Control and Law Enforcement Act of 1994 required an applicant to submit photographs
and fingerprints and certify their business was not prohibited by state or local laws. The firearm licenses
decreased substantially after such mandates were put in place. The almost 300,000 licenses dropped to
just over 103,000 by 1999.
Once a license is obtained, federal law requires all firearms dealers to follow a series of steps in
order to sell the firearms they obtain from distributors and manufacturers. Before a firearm can be sold,
the firearm dealer must submit the intended purchaser to a background check if the individual is not
licensed. Meticulous sales records must be kept in regards to the sale and acquisition of each firearm. If
a sale of multiple handguns takes place, it must be reported. The theft or loss of any firearm must be
reported to the Attorney General and to the local authorities within 48 hours of the left or loss being
discovered. They also have to provide a secure gun storage or safety device with every handgun
purchased or sold to a consumer. The firearm dealer must also submit to an annual ATF inspection to
ensure compliance with the federal recordkeeping requirements.
As the firearm dealer, there are restrictions as to who can purchase a firearm. Anyone with a FFL
cannot sell or deliver a firearm to another state without use of another dealer with a license within the
state where the purchase is taking place. They may not sell a shotgun or rifle or ammunition to an
individual under the age of 18 years. They also cannot sell a handgun or handgun ammunition to a
person under 21 years of age.
Such oversight of firearms dealers is critical because gun dealers represent a major source of
illegally trafficked firearms. One report from the ATF states 1,530 trafficking investigations which took
place between 1996 and 1998 were associated with the illegal trafficking of over 40,000 guns. Despite
the strong need for such oversight, ATF faces a number of different obstacles which enable corrupt
dealers to go undetected and unpunished. For example, as previously mentioned, the ATF may only
perform one inspection per year. This does not provide enough evidence during an investigation, leading
to misdemeanor convictions rather than felony charges.
In 2004, a report by the US Department of Justice’s Office of the Inspector General (OIG) found
the ATF’s programs for inspecting gun dealers, importers, manufacturers, collectors, and pawnbrokers,
was not fully effective for ensuring the FFLs comply with federal laws. The inconsistency and infrequent
nature of the inspections are sporadic, at best. Between 2004 and 2011, FFLs reported 174,679 firearms
missing from their inventories. Missing firearms pose a serious risk to public safety due to the inability to
trace them back to one individual.
Though there are a number of different state regulations which must be met along with federal
requirements, the state of Arizona does not have many. The best way for FFL carriers to maintain their
licenses is to follow the federal mandates applied. Local FFL laws may differ, so consult with local law
enforcement to get the specifics in your area. For more information about FFLs & transfers, visit our section about it here.
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