Why do FFL transfer dealers try to charge sales tax?

[SpyGuy]

Ok, this started in the Rifle forum. But it piqued my curiousity enough to seek an answer.

A number of FFL dealers here in California have a "policy" of collecting state sales tax (on the purchase price of the weapons) for receiving a firearms transfer. This is absolute BS. They are not selling anything, merely acting as a government-mandated transfer agents.

If I am buying my firearm from out-of-state, then California has no authority to tax me on the sale. Even if I were buying and transferring from a distant seller within California, it would be the seller's job to collect the sales tax, not that of the receiving FFL dealer.

I frankly don't understand why these dealers insist on collecting sales tax when there is no legal requirment for them to do so. I can't imagine that they are doing it out of a sense of loyalty or generosity to the state.

Which leads me to ask: are they lying to the buyers and really pocketing the money? If so, then they do have concern for looking over their shoulders--both from the state and from their customers! If not, then what is their motivation for this policy?

 

[Monkeyleg]

I've had similar arguments with dealers here, and I'm very familiar with the sales tax code. My guess is that they're intimidated by the state revenue service and don't want to run afoul of the laws. My hope is that they're not gouging.

Here in Wisconsin, if you buy something from out of state, you're supposed to pay a "use tax" on it which--surprise!--is the same percentage as the sales tax. Of course, only businesses actually pay use taxes.

 

[Quartus]

Which leads me to ask: are they lying to the buyers and really pocketing the money?

I've had a Califorinia sales tax license, and I'm familiar with the reportiing requirements. I've also had a business illegally charge me sales tax for services. (web hosting) they claimed it was an equipment lease. (I burned them.)


I'd say the answer to your question is probably YES. Or some may just be scared, as monkeyleg suggested.

Call the state tax board (Board of Equalization? Ah fergits - tis been a while.) Get the straight dope, and start dropping dimes.

 

[bastiat]

The best thing to do is call your state department of revenue, or similar body, that handles collecting sales tax. Have them send you or point you to information about sales tax on out of state purchases.

Either they are collecting tax and passing it on, or keeping it. If they're passing it on, they should be taught otherwise. If they're keeping it, don't hesitate to call the DOR to report them if they are shifty about it. Just because they are a gun dealer doesn't give them the right to screw their customers (and hide behind the "don't cause trouble for gun folk" unwritten rule)

 

[Zander]

"I can't imagine that they are doing it out of a sense of loyalty or generosity to the state."

No, they are doing it because they are thieves.

 

[Bud Helms]

If a "service", as in labor and time, is your product, then a sales tax charge may be perfectly legal. How it is receipted might be the key to how it is reported though.

 

[PreserveFreedom]

I think it all has to do with who collects the money. If you mail a money order to the seller and just pay the FFL a transfer fee, he can't really tax you on the sale price since he has no business knowing the sale price. On the other hand, if it is arranged that you pay the FFL for the purchase and he pays the seller, he may be obliged to charge tax. A good example is a dealer that agrees to accept the gun COD so he can inspect it on your behalf before the seller gets payment. It's really touchy when you force a third party in on a sale.

Kinda reminds me of the one guy in the shop that gets elected to pick up lunch. Everyone wants some 99¢ sandwiches so they give him $1 per sandwich. Somewhere in the works, the poor guy that is already burning his gas and missing some work winds up paying $3 in sales tax when all he is eating is $2 worth of food. The only escape is when one of the people placing an order doesn't have exact change. The guy paying with the biggest bill always gets stuck. Umm...did I lose anyone in my analogy?

 

[Quartus]

If a "service", as in labor and time, is your product, then a sales tax charge may be perfectly legal.

Not in Kali. Products only, and not all of them.

Good point PF, it all depends on how it's written up. If they are charging sales tax on the transfer fee, they are wrong.

 

[Guyon]

I had this problem recently with a rifle purchased from AIM. AIM's policy is that they will only sell to an FFL holder, so even though I paid for the gun with a credit card in my name, the name on the invoice was that of my FFL holder. So actually, he was supposed to charge me sales tax when he transfered the rifle to me. Luckily, this guy is pretty nice, and he waived the tax. Still, it took a little bit of complaining on my part. The whole point of mail order for me is to save on tax; otherwise, I'd just buy from dealers or at gun shows.

I've never heard of sales tax on the transfer fee itself though.

 

[mrat]

I had the same thing happen to me that happened to Guyon. I purchased the gun from CDNN and they charged my credit card directly. The sent the gun to my FFL and listed him as the buyer, therefore I had to pay sales tax.

 

[SpyGuy]

PreserveFreedom, first, let me clarify the situation. I am buying directly from an out-of-state dealer; he is collecting the money directly from me and selling the firearms directly to ME.

Unfortunately, thanks to the unconstitutional gun-control laws, the seller is required to send the guns to an FFL dealer in my state for the purposes of a background check and face-to-face transfer. The only entity forcing a third-party into this sale is the government.

The FFL dealer is providing a service by submitting my background check paperwork, sending a copy of his FFL license to the seller, collecting and submitting the DROS fees, and receiving the shipment from the seller. For that service, I am willing to pay a reasonable fee. However, it is quite clear that the FFL dealer who is receiving the guns on my behalf is not selling me anything. Therefore, there is no requirement for him to collect sales tax.

Your analogy about buying lunch is flawed on a couple of points:

1. The FFL dealer is not volunteering or elected to perform a favor for his buddies. He is a businessman performing a service in the conduct of his business. In fact, California law requires that FFL dealers provide this service.

2. He is not "burning gas," "missing work," or getting stuck picking up the leftover tab from a bunch of cheapskates (or a single cheapskate as you seem to imply about the buyer--in this case me). He IS spending his time and a little effort in conducting the transfer paperwork, etc. For this, he is compensated by charging a transfer service fee. IMHO, this should be a flat fee should be based solely on the time and effort he performs in conducting the transfer (which is the same for any non-Class III firearm of any cost). Making it a percentage of the purchase price is absurd and, in my mind, constitutes grafting.

Now, I realize that FFL dealers don't make a profit on transfers (unless they're charging exorbitant fees). But, we live in a capitalistic society and the gun business is ruled by the same market factors that rule other businesses. People will pay for value. If a dealer--local or otherwise--wishes to build his business and his clientele, then he must provide a better value for his customers, either through lower prices, better service, or a combination thereof (and, yes, convenience does play a part in the equation). If a dealer wishes to gain customers, then he needs to act with professionalism and honesty. But all too often, I see businesses (gun and otherwise) try to profiteer on a single sale and thus lose a potentially loyal customer.

Let me tell you why I went to an out-of-state dealer. I wanted to buy a new Ruger 22/45 (KP512) for my wife. There are two local gun shops where I live. One is discontinuing handgun sales. The other had the model Ruger I wanted in stock and he presented it as "new." However, he was charging full retail price for it ($359) and, after some questioning, admitted that it may have been "fired a few times" (i.e., it was used). That is not good business as far as I'm concerned.

So I found an out-of-state dealer that would sell me a factory-new, unhandled gun at a great price (saving me over $100). I then started searching for an FFL dealer to do the transfer. Most of the dealers within 25 miles wanted to charge high percentage-based fees and sales tax for the transfer. But I finally found a gentleman who does not collect sales tax and who only charges a low flat fee for the transfer. He is getting my business, even though I have to drive over 40 miles to get to his shop. I am also going to buy as many accessories and supplies as I can from this dealer (although his is a small shop and he doesn't carry much) as an expression of my gratitude as a customer. And, when it comes time for me to buy new firearms, I will give him an opportunity to make the sale. I will also recommend him to my friends.

That is how to run and build a business, IMHO.

 

[Quartus]

Spyguy, 3 things:

1. In this dumbed down age, thank you for the correct usage of "piqued".
   
2. I like your sig. AMEN!
   
3. If he is charging sales tax on the transfer fee I am 99% sure he's wrong. And pocketing the money.
   [/list=1]
   
   
   Take a look at the Kali State Board of Equalization for details of what is taxable. It's not up to the whim of the seller - it's spelled out in detail. Any questions, call BOE and drop a dime on these gougers.
   
   http://www.boe.ca.gov/
   
   Server seems to be down right now.

 

[SpyGuy]

Thanks, CaptainHoek, for the complements.

As far as the sales tax issue goes, all the FFL dealers I've seen who are collecting this are doing so on the purchase price of the firearm. Coincidentally, they also charge a transfer service fee based on a percentage of the purchase price of the firearm (with a minimum). Perhaps this is one of the tricks they employ to discover what the buyer paid for the purchase.

Having an FFL dealer charge sales tax on an out-of-state purchase would be appropriate only if the buyer directly paid the local FFL dealer (for the firearm), who then aquired the firearm from the out-of-state dealer. But then this is no different than any other special order purchase.

However, there is no way they can justify collecting sales OR use tax when actual sale occurs between the consumer and the out-of-state seller. Technically, all out-of-state retailers are required by California (and, I believe, most other states that have sales tax laws) to collect "use tax" (at the same rate as sales tax) and remit that amount to the state. But, as we all know, most out-of-state businesses blow off this essentially unenforceable "requirement." That's why the state governers are all bitching so much about the tax-free Internet.

The way I see it, having an FFL dealer, acting soley as a transfer agent, charge either sales tax or use tax, is no different than having UPS charge you tax on the sale price of an out-of-state purchase just because they helped deliver it to your door.

 

[jimpeel]

There are no taxes allowed for the performance of a service or labor in CA. I believe that the state does ask out-of-state sellers to collect sales taxes but they don't always do that. When a consumable enters the state and passes through the hands of an in-state retailer, he may be required to collect those sales taxes prior to the release of the goods.

Try here: http://www.leginfo.ca.gov/calaw.html

Or here: http://california.findlaw.com/ca01_codes/index.html

 

[PKAY]

I have made two handgun purchases via the internet from out of state FFL's. Both transactions have, of course, gone through a local FFL who charged $10 per gun plus $15 DROS. Because they each were internet transactions requiring his time and effort to provide the out of state FFL with a signed copy of his license and arrangements for shipping, he charged an additional $25 fee. Were either one of the transactions a local private party transfer, he would not charge any fee over what is mandated by state law, $25 total. I made all payments for the merchandise directly to the out of state FFL. In neither case did he charge sales tax.

 

[TaxPhd]

SpyGuy,

You aren't quite right about the following:

"However, there is no way they can justify collecting sales OR use tax when actual sale occurs between the consumer and the out-of-state seller."

Whether they can justify it or not, it is the law. If you are in California, you are required to pay sales tax on goods purchased. If you purchase them in the state, the seller should collect and remit the tax. If you purchase mail order or over the internet, and the seller has nexus in California, then they should collect and remit the tax. However, on a mail order or internet sale where the seller doesn't have nexus in California, the seller has no duty to collect and remit the sales tax, or use tax. The purchaser is required to calculate and remit use tax on their state income tax return (as several have pointed out, nobody does this - but it is the law).

"Technically, all out-of-state retailers are required by California (and, I believe, most other states that have sales tax laws) to collect "use tax" (at the same rate as sales tax) and remit that amount to the state. But, as we all know, most out-of-state businesses blow off this essentially unenforceable "requirement." That's why the state governers are all bitching so much about the tax-free Internet."

This is not correct. See above. California cannot require out-of-state sellers wo do not have nexus in the state to do anything with regards to sales tax. Out of state sllers with nexus in California collect and remit sales tax to California on sales to California. They have nothing to do with use tax. That is self-assessed and remitted.

 

[kemasa]

Law is ...

The law in CA is that the FFL must collect sales tax if the firearm comes from another business, unless the other business collects the sales tax. If the firearm comes from a private party, the person can write a letter stating that they are not a business and that it is an occasional sale. That is the law, the FFL is not trying to rip people off or anything else. Part of the problem is that many FFLs don't know the law and don't charge, which causes people to have a false impression and also will result in a problem when they are audited.

A second issue is sales tax on labor. In the case of a FFL, the law is that the FFL has to collect sales tax on their fee to do the paperwork, which is basically a labor charge.

See: http://www.boe.ca.gov/

Specifically: CA Sales Tax Firearms Information (495.0843 & 495.0848)

Before you go accusing people of things, you should check the facts.

 

[tjhands]

Dude, you're posting on a waaaay old thread - check the date. Not that the info is invalid or anything. Just letting ya know.

 

[kemasa]

Yes, I know it is old, but it is still searchable and incorrect information should be corrected so that other who read it know what is correct.

 

[Zekewolf]

Spyguy: By your own choice, you're contemplating dealing with a dishonest and/or ignorant FFL. On the other hand, he's dealing with a guy who finds it necessary to tell him (the FFL) how much he's paying for his firearm. Why would you be motivated to discuss the particulars of your deal with the transferee FFL???