Fortunately, the complex web of federal and state regulation of the domestic defense industry has not halted manufacture of products essential for national security. Indeed, there has been significant growth in the ammunition industry, due, in part, to shortages in certain calibers of small arms ammunition. Ammunition was largely deregulated under the 1986 amendments to the Gun Control Act of 1968. Nonetheless, there are still significant federal requirements for persons or businesses who wish to manufacture ammunition, including the federal explosives laws, the Arms Export Control Act, the Firearms and Ammunition Excise Tax and the Chemical Facility Anti-Terrorism Standards. This article provides an overview of those requirements to assist industry members entering this growing segment of the defense industry.
1. Gun Control Act of 1968
The Gun Control Act of 1968 (GCA), 18 U.S.C. Chapter 40, controls the manufacture, import, transport, transfer and possession of ammunition and ammunition components, such as cartridge cases, primers, bullets or propellant powder. In 1986, Congress passed the Firearms Owners’ Protection Act (FOPA), which significantly amended the GCA. Included among the changes was removal of most of the controls over ammunition. However, there remain the following requirements and restrictions:
Licensing: Persons who engage in the business of manufacturing or importing ammunition must obtain a license from the Bureau of Alcohol, Tobacco, Firearms and Explosives (ATF). No license is required for persons who only deal in ammunition. A license must be obtained for each site at which manufacturing will take place.
Prohibited Persons: The GCA lists several categories of persons prohibited from shipping, transporting, receiving or possessing ammunition. This includes those convicted of crimes punishable by imprisonment for a term exceeding one year, illegal aliens, unlawful drug users and those dishonorably discharged from the U.S. military.
Armor Piercing Ammunition: “Armor piercing ammunition” may be manufactured and imported only for sale to government agencies and in limited quantities for testing or experimentation. In addition, record keeping requirements apply to armor piercing ammunition but not to other types of ammunition.
Importation: Import requirements, including the Form 6 import permit, apply to ammunition. Armor piercing and nonsporting ammunition are generally prohibited from importation except for sale to government agencies.
2. Federal Explosives Laws
The federal explosives laws, 18 U.S.C. Chapter 40, regulate commerce in “explosive materials.” The statute defines the term “explosive materials” as explosives, blasting agents and detonators and “explosives” as any chemical compound mixture or device the primary or common purpose of which is to function by explosion. The definition requires ATF to publish an annual list of explosives that fit within the statutory definition. The List of Explosive Materials is available on ATF’s website at www.atf.gov/explosives/qa/what-%E2%80%9Cexplosives-list%E2%80%9D. Smokeless powder, nitrocellulose, tetrazene and other chemical compounds used in manufacturing ammunition are listed.
The federal explosives laws make it unlawful for any person other than the holder of a Federal explosives license or permit to transport or receive explosive materials. The law also prohibits the distribution of explosive materials by a holder of a license or permit to any person other than a licensee or permittee.
All persons engaging in the business of importing, manufacturing or dealing in explosive materials must obtain a license issued by ATF and are required to create and maintain records of their acquisition and distribution of explosive materials. All persons are required to store explosive materials in accordance with regulations issued by ATF.
Exemptions from the requirements of the federal explosives laws are provided, in pertinent part, for the transportation, shipment, receipt or importation of explosive materials for delivery to any federal or state agency; for small arms ammunition and components thereof; and for the manufacture of explosive materials under the regulation of the U.S. military for their official use.
ATF regulations implementing the federal explosives laws define “ammunition” as:
Small arms ammunition or cartridge cases, primers, bullets, or smokeless propellants designed for use in small arms, including percussion caps, and 3/ 32 inch and other external burning pyrotechnic hobby fuses. The term does not include black powder.
ATF’s longstanding position is that the small arms ammunition exemption applies only to .50 caliber or smaller rifle or handgun ammunition, as well as certain shotgun ammunition.
ATF takes the position that smokeless powder designed for use in small arms ammunition is exempt from all requirements of the federal explosives laws and regulations, including storage and record keeping requirements. However, ATF requires persons engaging in the business of importing or manufacturing smokeless powder to have a federal explosives license. ATF also exempts other small arms components from the requirements of the law and regulations, but only if such components are listed in the definition of “ammunition” in 27 C.F.R. § 555.11. This means that smokeless powder and primers are exempt from record keeping and storage requirements. However, other explosive materials used to manufacture ammunition will not be exempt until incorporated into either a complete primer or a complete round of small arms ammunition. For example, tetrazene, used in manufacturing primers, must be recorded in records of acquisition and the daily summary of magazine transactions. Tetrazene must also be stored in storage magazines meeting the construction, tables of distance and other requirements of storage regulations. At the point the tetrazene is incorporated into either a complete primer or a complete round of ammunition, it would be exempt from the requirements of the record keeping, storage and other requirements of federal law and regulations.
Storage requirements for explosive materials are dictated by their classification as high explosives, low explosives or blasting agents. Explosive materials must be stored in Type 1, Type 2, Type 3 or Type 4 magazines, depending on the classification of the explosive materials.
As stated above, the federal explosives laws exempt from the statute manufacture of explosive materials for use of the federal government. Manufacturers with Department of Defense contracts must be careful, however, to segregate products manufactured under such contracts from commercial products. Only explosives manufactured under the federal contracts will be exempt from the record keeping, storage and other requirements of the law. If ATF investigators cannot determine which products are exempt and which are not, violations of the law and regulations may be cited, and penalties may be incurred.
3. Arms Export Control Act
The Arms Export Control Act (AECA), 22 U.S.C. § 2778, gives the President the authority to control the import, export and brokering of defense articles and defense services in the interest of the United States’ national security and foreign policy. Jurisdiction over the permanent importation of defense articles has been delegated to the Attorney General. ATF’s implementing regulations are in 27 C.F.R. Pt. 447 and include the U.S. Munitions Import List, which specifies all covered “defense articles.”
Defense articles regulated under the AECA include ammunition, listed on the United States Munitions Import List, Category III, for both small arms and large caliber weapons over .50 caliber, such as mortars and howitzers. Category III(b) also includes components, parts, accessories and attachments for ammunition, including cartridge cases, powder bags, bullets, jackets, cores, shells (excluding shotgun shells), projectiles, boosters, fuzes and components therefor, and primers.
Persons who wish to engage in the business of importing defense articles must register with ATF. Registration is accomplished by completing ATF Form 4587 and paying the applicable registration fee. The quickest way to register is through the www.pay.gov website and by paying with a credit card.
Importation of smokeless powder, primers and other components of ammunition listed in Category III(b) requires prior authorization from ATF on an approved Form 6 import permit. ATF encourages importers to utilize its e-Forms system to complete and submit the Form 6 application, which may shave two weeks off the usual six-week processing time.
While ATF has jurisdiction over the permanent import of defense articles, the U.S. Department of State has control over the export, temporary import and brokering provisions of the AECA. The U.S. Department of State implements the AECA through its regulations known as the International Traffic in Arms Regulations. The AECA also requires registration of defense articles manufacturers, including ammunition, even if the manufacturer does not engage in exporting defense articles. Registration is accomplished through electronic submission of the Department of State Form DS-2032 to the Directorate of Defense Trade Controls (DDTC). Information on registration is available on State’s website at www.pmddtc.state.gov/registration/index.html.
The base registration fee for manufacturers who do not export defense articles is $2,250 per year.
Export of ITAR-controlled articles, including ammunition, requires prior authorization from DDTC in the form of export licenses. However, export of shotgun shells is regulated by the U.S. Department of Commerce, Bureau of Industry and Security.
4. Firearms and Ammunition Excise Tax
Section 4181, Title 26, United States Code, imposes upon the sale by the importer, producer or manufacturer an 11-percent tax on shells and cartridges.
The term “shells and cartridges” is defined to include:
[A]ny article consisting of a projectile, explosive and container that is designed, assembled and ready for use without further manufacture in firearms, pistols or revolvers. A person who reloads used shell or cartridge casings is a manufacturer of shells or cartridges within the meaning of section 4181 if such reloaded shells or cartridges are sold by the reloader. However, the reloader is not a manufacturer of shells or cartridges if, in return for a fee and expenses, he reloads casings of shells or cartridges submitted by a customer and returns the reloaded shells or cartridges with the identical casings provided by the customer to that customer. Under such circumstances, the customer would be the manufacturer of the shells or cartridges and may be liable for the tax on the sale of the articles. See section 4218 of the Code and § 53.112.
The term “manufacturer” is defined in 27 C.F.R. § 53.11 to include:
[A]ny person who produces a taxable article from scrap, salvage or junk material, or from new or raw material, by processing, manipulating or changing the form of an article or by combining or assembling two or more articles. The term also includes a “producer” and an “importer.” Under certain circumstances, as where a person manufactures or produces a taxable article for another person who furnishes materials under an agreement whereby the person who furnished the materials retains title thereto and to the finished article, the person for whom the taxable article is manufactured or produced, and not the person who actually manufactures or produces it, will be considered the manufacturer.
A manufacturer who sells a taxable article in a knockdown condition is liable for the tax as a manufacturer. Whether the person who buys such component parts or accessories and assembles a taxable article from them will be liable for tax as a manufacturer of a taxable article will depend on the relative amount of labor, material and overhead required to assemble the completed article and on whether the article is assembled for business or personal use.
Manufacturers who make and sell shells and cartridges must file quarterly Firearms and Ammunition Excise Tax Returns with the Alcohol and Tobacco Tax and Trade Bureau (TTB) for any quarter in which the manufacturer sells or uses ammunition it manufactures. Tax must be paid with the quarterly return. Tax may be paid via Electronic Funds Transfer.
More information about payment of firearms and ammunition excise tax may be found in our articles on this subject published in Small Arms Review in Vol. 20, #6 and #7 (July and September 2016).
5. Chemical Facility Anti-Terrorism Standards (CFATS)
The CFATS program identifies and regulates high-risk chemical facilities to ensure they have security measures in place to reduce the risks associated with certain chemicals of interest (COI). The Department of Homeland Security (DHS) administers the CFATS program, which may apply to manufacturers of ammunition if they have specified quantities of COI. COI are listed in CFATS Appendix A: DHS Chemicals of Interest List, 6 C.F.R. Part 27. The goal of the CFATS program is to prevent a terrorist from using COI to cause a significant loss of human life via a deliberate onsite release or theft/ diversion for offsite use.
DHS determines a facility’s risk profile by requiring those in possession of threshold quantities and concentrations of COI to complete a survey known as a Top-Screen. The Top-Screen is an electronic questionnaire completed on the DHS website. On March 29, 2017, DHS published detailed instructions for completing the Top-Screen, titled “Chemical Security Assessment Tool (CSAT) 2.0 Top-Screen Instructions.” This publication includes a wealth of information on who is required to submit the Top-Screen, when it must be submitted, and what to expect after submission. These instructions, as well as other CFATS guidance, are available on the DHS website. After the Top-Screen is completed DHS determines a facility’s risk profile and may require submission of a Security Vulnerability Assessment and a Site Security Plan. The security plan will be evaluated by DHS to ensure the facility’s planned security posture meets specified risk-based performance standards.
A number of chemicals used in manufacturing ammunition are included on the COI list in the regulations, including nitrocellulose and tetrazene. DHS officials advise that once COI are incorporated in articles (as defined in 40 CFR 68.3), they are no longer subject to CFATS requirements. An article means “a manufactured item that is formed to a specific shape or design during manufacture, that has end use functions dependent in whole or in part upon the shape or design during end use, and that does not release or otherwise result in exposure to a regulated substance under normal conditions of processing and use,” and includes most complete primers or rounds of ammunition.
Propellants incorporated into completed rounds that meet the definition of an article are not subject to CFATS reporting requirements. However, prior to incorporation into the round, they may count toward the Screening Threshold Quantity. Individual COI components used to make propellants classified as 1.1 materials are subject to CFATS reporting requirements. The reference to “1.1 materials” means those hazardous materials classified as Category 1.1 by the Department of Transportation. All COIs contained within a propellant that is classified as a 1.1 material are subject to CFATS reporting requirements. However, COIs incorporated within a propellant that is not classified as a 1.1 material are not subject to CFATS reporting requirements.
DHS chemical security inspectors work in all 50 states to help ensure facilities have security measures in place to meet CFATS requirements. DHS has authority to impose civil fines on facilities who fail to comply with CFATS requirements.
Manufacturers of ammunition should review the list of COI to determine whether they have threshold quantities of any of the chemicals listed. If so, manufacturers should complete the Top-Screen and comply with the CFATS requirements to avoid noncompliance and potential penalties, and, of course, to help keep COI out of the hands of bad actors.
Persons who manufacture ammunition in the U.S. are subject to a complex web of federal statutes and regulations. We provide the following checklist as a quick summary of the federal requirements outlined in more detail above:
- Manufacturers of ammunition must obtain a license under the GCA for each site at which manufacture will occur;
- Manufacturers must obtain a license under the federal explosives laws for each manufacturing site and comply with the storage, record keeping and transfer requirements of the law;
- Manufacturers must register with the Department of State, Directorate of Defense Trade Controls;
- Manufacturers must pay excise tax on their sales or use of ammunition;
- Manufacturers of ammunition who import smokeless powder, primers or other components of ammunition must register with ATF as an importer and comply with the permanent import provisions of the AECA; importation of ammunition (including components) is also subject to the requirements of the GCA;
- Manufacturers of ammunition who manufacture or acquire threshold quantities of COI must complete a risk assessment with the Department of Homeland Security and may be subject to further requirements depending on their level of risk.
State law requirements should also be considered by anyone intending on manufacturing ammunition, as licensing and storage requirements may apply. Questions about federal and state requirements should be addressed with qualified counsel.