[Federal Register Volume 61, Number 169 (Thursday, August 29, 1996)]
[Proposed Rules]
[Pages 45377-45378]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-22044]
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DEPARTMENT OF THE TREASURY
Bureau of Alcohol, Tobacco and Firearms
27 CFR Part 53
[Notice No. 836]
RIN 1512-AB49
Firearms and Ammunition Excise Taxes, Parts and Accessories
AGENCY: Bureau of Alcohol, Tobacco and Firearms (ATF), Department of
the Treasury.
ACTION: Notice of proposed rulemaking.
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SUMMARY: This notice proposes to amend regulations in 27 CFR Part 53,
relating to the manufacturers excise tax on firearms and ammunition.
Pursuant to 26 U.S.C. 4181, a tax is imposed on the sale by the
manufacturer, importer or producer of pistols, revolvers, firearms
(other than pistols and revolvers) shells, and cartridges. The tax is
10 percent of the sale price for pistols and revolvers, 11 percent of
the sale price for firearms (other than pistols and revolvers) and 11
percent of the sale price for shells and cartridges. Current
regulations provide that no tax is imposed by section 4181 of the
Internal Revenue Code on the sale of parts or accessories of firearms,
pistols, revolvers, shells, and cartridges when sold separately or when
sold with a complete firearm. This notice proposes regulations to
clarify which parts and accessories must be included in the sale price
when calculating the tax on firearms.
DATES: Written comments must be received on or before November 27,
1996.
ADDRESSES: ATF, P.O. Box 50221, Washington, DC 20091-0221.
FOR FURTHER INFORMATION CONTACT: Tamara Light, Regulations Branch, 650
Massachusetts Avenue, NW, Washington, DC 20226, (202) 927-8210.
SUPPLEMENTARY INFORMATION:
Background
The Bureau of Alcohol, Tobacco and Firearms (ATF) is responsible
for collecting the firearms and ammunition excise tax imposed by
section 4181. The Pittman-Robertson Wildlife Restoration Act, 16 U.S.C.
Sec. 669 et seq., requires that an amount equal to all of the revenue
collected under section 4181 be covered into the Federal aid to
wildlife restoration fund. The fund is apportioned to the States for
hunter safety programs, maintenance of public target ranges, and
wildlife and wetlands conservation. It is important that the correct
amount of Federal excise tax imposed by section 4181 be collected in
order to fund these programs.
The current regulation provides that no tax is imposed by section
4181 of the Internal Revenue Code on the sale of parts or accessories
of firearms, pistols, revolvers, shells, and cartridges when sold
separately or when sold with a complete firearm. This regulation was at
issue in Auto-Ordnance Corp. versus United States, 822 F.2d 1566 (Fed.
Cir. 1987). In this case a manufacturer of firearms sued to recover
excise taxes paid on sights and compensator units sold with rifles it
manufactured. The manufacturer claimed that these parts were nontaxable
accessories which should not be included in the taxable sale price of
the rifles. The Internal Revenue Service (IRS), the agency responsible
for administering the tax on firearms at that time, contended that the
sights and compensator units were component parts of the rifles which
must be included in the taxable sale price.
The court noted that the position of the IRS that all component
parts of a ``commercially complete'' firearm must be included in the
sale price was a concept that was not found in the regulations. Since
the regulations did not specify which parts are component parts of a
firearm nor define the term ``accessories,'' the court found that it
was appropriate to look beyond the language of the regulation. The
court discussed several dictionary definitions of the term
``accessories'' as well as tariff and customs classification cases. The
court then held that the sights and compensator units were nontaxable
accessories, since they were readily removable and of secondary or
subordinate importance to the function of the firearm.
After taking over the administration of the firearms and ammunition
excise tax from the IRS in 1991, ATF has issued numerous rulings on
parts and accessories. ATF has found it increasingly difficult to apply
the regulation on parts and accessories as interpreted by the court in
Auto-Ordnance. For example, the ``secondary or subordinate importance''
test is difficult to apply to parts which are essential for the safe
operation of the firearm. Arguably, such parts are essential to the
function of the firearm and should be included in the taxable sale
price. However, if such parts are not needed to fire the firearm, it is
possible that a Federal court, applying the rationale of Auto-Ordnance,
would hold that such parts are nontaxable accessories.
ATF proposes to amend the regulations relating to parts and
accessories to provide definitions for ``component parts'' which must
be included in the taxable sale price and ``nontaxable parts'' and
``nontaxable accessories'' which are excluded from the taxable sale
price. The purpose of these definitions is to reinstate the long-
standing ``commercial completeness'' test of the IRS in a manner which
will withstand judicial scrutiny. The effect of the proposals will be
to replace the readily removable/essential to the function test of the
Auto-Ordnance case with a more objective, predictable standard to use
in determining whether items sold with a firearm are includible in the
tax basis.
It is possible that the proposed regulations will result in
increased tax liability for some taxpayers. However, the more precise
definitions should help taxpayers accurately calculate the taxable sale
price of their firearms and avoid underpayments, penalties, and
interest.
Regulatory Flexibility Act
The provisions of the Regulatory Flexibility Act relating to an
initial and final regulatory flexibility analysis (5 U.S.C. 603, 604)
are not applicable to this notice of proposed rulemaking, because the
proposed rule, if promulgated as a final rule, will not have a
significant economic impact on a substantial number of small entities,
or impose or otherwise cause, an increase in the reporting,
recordkeeping or other compliance burdens on a
[[Page 45378]]
substantial number of small entities. Accordingly, it is hereby
certified under the provisions of Section 3 of the Regulatory
Flexibility Act (5 U.S.C. 605(b)) that this proposed rule, if
promulgated as a final rule, will not have a significant economic
impact on a substantial number of small entities. The factual basis for
such certification is that this notice of proposed rulemaking does not
impose any new reporting or recordkeeping requirements. This notice
merely clarifies existing regulations. A copy of this notice of
proposed rulemaking is being sent to the Small Business Administration
for comment pursuant to 26 U.S.C. 7805(f).
Executive Order 12866
It has been determined that this proposed regulation is not a
significant regulatory action as defined by Executive Order 12866.
Accordingly, this proposal is not subject to the analysis required by
this Executive Order.
Paperwork Reduction Act
The provisions of the Paperwork Reduction Act of 1980. Public Law
96-511, 44 U.S.C. chapter 35, and its implementing regulations, 5 CFR
part 1320, do not apply to this notice of proposed rulemaking because
there are no new reporting or recordkeeping requirements.
Public Participation--Written Comments
ATF requests comments from all interested persons. Comments
received on or before the closing date will be carefully considered.
Comments received after that date will be given the same consideration
if it is practicable to do so, but assurance of consideration cannot be
given except as to comments received on or before the closing date. ATF
will not recognize any material as confidential. Comments may be
disclosed to the public. Any material which the commenter considers to
be confidential or inappropriate for disclosure to the public should
not be included in the comment. The name of the person submitting the
comment is not exempt from disclosure. During the comment period, any
person may request an opportunity to present oral testimony at a public
hearing. However, the Director reserves the right, in light of all
circumstances, to determine if a public hearing is necessary.
Disclosure
Copies of this notice and the written comments will be available
for public inspection during normal business hours at: ATF Public
Reading Room, Room 6480, 650 Massachusetts Avenue, NW, Washington, DC.
List of Subjects in 27 CFR Part 53
Administrative practice and procedure, Arms and munitions,
Authority delegations, Exports, Imports, Penalties, Reporting and
recordkeeping requirements.
Authority and Issuance
Accordingly, 27 CFR Part 53, entitled ``Manufacturers Excise
Taxes--Firearms and Ammunition'' is proposed to be amended as follows:
Paragraph 1. The authority citation for 27 CFR Part 53 continues to
read as follows:
Authority: 26 U.S.C. 4181, 4182, 4216-4219, 4221-4223, 4225,
6001, 6011, 6020, 6021, 6061, 6071, 6081, 6091, 6101-6104, 6109,
6151, 6155, 6161, 6301-6303, 6311, 6402, 6404, 6416, 7502.
Par 2. Section 53.61(b) is revised to read as follows:
Sec. 53.61 Imposition and rates of tax.
* * * * *
(b) Parts or accessories.
(1) In general. No tax is imposed by section 4181 of the Code on
the sale of parts or accessories of firearms, pistols, revolvers,
shells, and cartridges when sold separately or when sold with a
complete firearm for use as spare parts or accessories. The tax does
attach, however to sales of completed firearms, pistols, revolvers,
shells, and cartridges, and to sales of such articles which, although
in a knockdown condition, are complete as to all component parts. All
component parts for firearms are includible in the tax basis.
(2) Component Parts. Component parts are items which would
ordinarily be attached to a firearm during use and, in the ordinary
course of trade, are packaged with the firearm at the time of sale by
the manufacturer or importer.
(3) Nontaxable Parts. Parts sold with firearms which duplicate
component parts are not includible in the tax basis.
(4) Nontaxable Accessories. Items which are not designed to be
attached to a firearm during use or which are not, in the ordinary
course of trade, provided with the firearm at the time of sale by the
manufacturer or importer are not includible in the tax basis.
(5) Separate sales. Tax is imposed on component parts whether or
not charges for such parts are billed separately. If taxable articles
are sold by the manufacturer, producer, or importer thereof, without
component parts, the separate sale of the component parts to the same
vendee will be considered, in the absence of evidence to the contrary,
to have been made in connection with the sale of the basic article,
even though the component parts are shipped separately, at the same
time, or on a different date.
(6) Examples. (i) In general. The following examples are provided
as guidelines and are not meant to be all inclusive.
(ii) Component parts: Include items such as a frame or receiver,
breech mechanism, trigger mechanism, a barrel, a buttstock, a
forestock, a handguard, grips, buttplate, fore end cap, trigger guard,
a sight or set of sights (iron or optical), a sight mount or set of
sight mounts, a choke, a flash hider, a muzzle brake, a magazine, a set
of sling swivels, an attachable ramrod for muzzle loading firearms when
provided by the manufacturer or importer for use with the firearm in
the ordinary course of commercial trade. Parts in a partially completed
state which can be readily adapted for use. Any part or parts provided
with the firearm which would affect the tax status of the firearm, such
as an attachable shoulder stock.
(iii) Nontaxable parts: Items such as extra barrels, extra sights,
optical sights and mounts (in addition to iron sights), spare
magazines, spare cylinder, extra choke tubes, spare pins.
(iv) Nontaxable accessories: Items such as cleaning equipment,
slings, slip on recoil pad (in addition to standard buttplate), tools,
gun cases for storage or transportation, separate items such as knives,
belt buckles, medallions. Optional items purchased by the customer at
the time of retail sale which do not change the tax classification of
the firearm, such as telescopic sights and mounts, recoil pad, slings,
sling swivels, chokes, flash hiders/muzzle brakes of a type not
provided by the manufacturer or importer of the firearm in the ordinary
course of commercial trade.
* * * * *
Signed: May 29, 1996.
John W. Magaw,
Director.
Approved: June 12, 1996.
John P. Simpson,
Deputy Assistant Secretary (Regulatory, Tariff and Trade Enforcement).
[FR Doc. 96-22044 Filed 8-28-96; 8:45 am]
BILLING CODE 4810-31-U