America’s Hidden Gun Manufacturers

The Appeal of the Type 07 FFL

The Gun Control Act of 1968 (GCA) established the current federal licensing system for manufacturers, importers, wholesalers, and dealers of firearms. Under the GCA, any person “engaged in the business” of making or selling firearms must be licensed by ATF.⁶

The ATF graphic below describes the nine types of Federal Firearms Licenses (FFLs) issued by the agency.

Both the Type 01 FFL dealer’s license (the basic license to sell firearms other than destructive
devices⁷) and the Type 07 FFL manufacturer’s license (the basic license to manufacture firearms other than destructive devices) are exempt from many of the restrictions on the sale and transfer of firearms that private citizens are subject to under the Gun Control Act. Unlike ordinary citizens, these license holders are:

• able to buy and sell firearms in interstate commerce and receive firearms via common carrier;

• able to purchase firearms from wholesalers at discount and in unlimited quantities; and,

• are able to bypass requirements that apply to unlicensed individuals, such as background checks.

In addition, by paying a “Special Occupancy Tax” (SOT) a Type 07 license holder, in addition to manufacturing standard firearms, can also manufacture weapons and firearm accessories that come under the more restrictive regulations of the National Firearms Act of 1934 (NFA), such as fully automatic machine guns and firearm silencers.

According to the “federal firearms license experts” at FFL123,⁸ a commercial site that sells online kits that cater to private citizens who want to obtain a federal dealer (Type 01) or manufacturing (Type 07) license for personal use, usually from their home (such license holders are commonly known as “kitchen table” dealers or manufacturers):

The Type 07 FFL is the most powerful and popular FFL to get. With it you can do everything a Type 01 FFL can (buy, sell and repair firearms) plus manufacture guns and ammo. When you add a Class 03 SOT to this license you can also make NFA items like silencers and even machine guns!

With the growing popularity of silencers, short barrel rifles and shotguns and other NFA items, many gun dealers choose a Type 07 license so they can serve all their customer’s needs. With the rising popularity of AR-type sporting rifles and the wide availability of parts, many Type 07 FFL holders are choosing to manufacture custom rifles for resale.

Get this FFL if you want the freedom to make and sell guns and ammo, and to add a Class 03 SOT to tap the lucrative NFA market.⁹

The fee for a Type 07 FFL is $150 to apply and $150 to renew every three years. The annual Special Occupancy Tax (SOT) for the Type 07 License is $1,000 per year, unless the applicant/license holder qualifies for a “reduced” rate of $500 per year available to license holders whose total income (“not just receipts relating to the activity subject to special occupational tax”) for the tax year is less than $500,000.¹⁰

The FFL & Class 3 License Guides kit sold by FFL123 (its “Most Popular” with a “No-Risk 150% back money guarantee”) offers what the site calls “common sense” advice for the Type 07 license applicant as the applicant prepares to meet literally at a kitchen table with an ATF inspector:

Plan on meeting at the licensed location address you entered on the application. If you are home based, plan on meeting at your ‘kitchen table.’ Try to look professional (business casual), as they will look professional. Please use some common sense before and during the meeting; put the dogs up, hide the guns, throw the empty beers cans away and try to look like you are organized so that they know that they can trust you to deal in firearms. Have a pad of paper handy so that you can take notes, and appear ready to learn from them. They won’t ask to see the gun room or any other parts of your home normally. They will ask where you plan to conduct your business because this is the ONLY area that they can lawfully inspect in the future. This is one time where we would recommend being very specific with the ATF…Be truthful and give them an answer that fits your circumstance; just remember, this is the area that they will inspect, if need be, in the future.¹¹

The FFL123 guide adds as a “side note” that “ATF inspectors can only come to inspect during ‘business hours.’ They can only inspect once every 12 months. Do not expect an inspection but once every 20 years, as we understand that is their average.”¹²

This is not an exaggeration. For fiscal year 2021, only five percent of FFL holders (6,643 out of 134,516) were subject to ATF firearm compliance inspections.¹³ As a result of these 6,643 compliance inspections, only 149 inspections (two percent) resulted in “warning conferences” Thirty-one FFL holders had their licenses revoked by ATF — less than one percent of the FFL holders that were inspected (0.47 percent).¹⁴

From Kitchen-Table Dealers to
Kitchen-Table Manufacturers

The current dramatic increase in Type 07 manufacturer license holders mirrors a similar increase in Type 01 dealer license holders that occurred at the end of the last century.

The 1992 Violence Policy Center study More Gun Dealers Than Gas Stations revealed that from 1975 to 1992 the number of Type 01 FFLs ballooned from 146,429 to 245,000 — an increase of 67 percent.¹⁵ The licenses were so easily obtained from ATF that at the time of the study’s release, the number of Americans who possessed a Type 01 FFL was greater than the number of gas stations across the nation: 245,000 compared to 210,000. The bulk of the licenses were held by “kitchen-table” dealers. These license holders operated out of their homes or offices, as opposed to storefront gun dealers (commonly known as “stocking dealers”). Of these kitchen-table dealers, an unknown percentage were actively involved in criminal gun sales as well as illegal firearms trafficking.

In response to the widespread abuse of Type 01 FFLs and at the urging of the Violence Policy Center, the Clinton Administration began strictly enforcing the requirement that license holders be “engaged in the business” of selling firearms as required by federal statute. In addition, the 1994 Brady Law implemented many of the recommendations the VPC laid out in its 1992 study. Additional requirements were contained in the 1994 Violent Crime Control and Law Enforcement Act. Heightened ATF scrutiny, both at the time of issuance and renewal, sent a message to the firearms community (both law-abiding and criminal) that the days when a dealer’s license could be obtained with virtually unquestioned ease had come to an end. At the same time, state and local jurisdictions began focusing on kitchen-table dealers via a wide range of enforcement mechanisms (e.g., instituting their own standards for license eligibility, enforcing zoning and business laws, and conducting onsite inspections of licensees’ “place of business”). As a result of these enforcement efforts, the number of Type 01 FFLs in the United States has dropped 76 percent — from 213,734 in 1994 to 51,855 in 2022.¹⁶ It remains to be seen whether a new rule implemented by the Biden Administration to force more people to obtain gun dealer licenses will have the intended effect of enhancing public safety or whether the unintended consequence will be a return to the days when there were more gun dealers than gas stations and corrupt gun dealers were associated with a shockingly large volume of illegally trafficked firearms.

And while the number of Type 01 FFLs has remained relatively constant over the past 25 years, as detailed earlier the number of Type 07 FFLs has skyrocketed as the result of “kitchen table” manufacturers.

Possible factors driving this shift could include:

• Tighter ATF scrutiny on the issuance of Type 01 FFLs has led those who would have obtained a Type 01 for its personal benefits to now focus on the Type 07. As noted earlier, the Type 07 license offers all of the benefits of the Type 01, with the additional ability to manufacture firearms.

• The increasing recognition that, like the Type 01 license, the Type 07 license allows both the sale and purchase of NFA items such as silencers and machine guns without the more rigorous background checks and related fees required of private citizens for possession of these firearms and accessories. This is accomplished merely by paying an annual Special Occupational Tax (SOT). But in addition, the Type 07 license allows for the manufacture of weapons and accessories that came under the NFA. As FFL123’s website claims, “Most people find an 07 FFL/Class 2 SOT is the perfect combination because you can make and sell pretty much any kind of firearm or NFA device including machine guns. We should note that the market for machine guns is limited to other SOT holders and government agencies. But there is nothing stopping you from building a machine gun for any legitimate business purpose.”¹⁷

• In 1986, Congress banned the production of new machine guns for civilian sale (private citizens can, however, purchase pre-1986 machine guns under federal law if they meet the heightened sale and possession standards of the NFA as well as local law). The Type 07 license (like the Type 01 license) combined with the SOT allows the possessor access to new, post-1986 machine gun “samples,” ostensibly for law enforcement or similar sales or review.¹⁸ In fact, such “dealer samples” are often obtained for private use. As FFL123 trumpets, “In fact, this is the most common way to gain access to post May 1986 machine guns and combine business with pleasure!”¹⁹ In a July 2021 blog titled “Who Can Own a Full-Auto Machine Gun?,” FFL123 owner Brandon Maddox enthusiastically answers his own question as seen in the extended quote below:
  
  Who can own a full-auto machine gun? Well, the simple answer is: you! You can own a machine gun. Yes, that’s right. It’s perfectly legal for you to own a machine gun! They are not some mythical object made up of Unobtainium…
  
  Under current law, only government agencies can acquire newly-made machine guns – but they still need dealers to buy them from and manufacturers to make them.
  
  Sales of such guns go through FFL gun dealers with either an 03 SOT (retail sales of NFA items with an 01 or 02 FFL) or an 02 SOT (manufacturing of NFA items with an 07 or 10 FFL).
  
  Here’s where it gets interesting…
  
  An 03 SOT needs a letter from a law enforcement agency asking to see a particular machine gun demonstrated. This is called a demo letter, and the gun is called a dealer sample. Only 02 and 03 SOTs can acquire dealer samples, and only with a demo letter. Once you allow the agency to examine the gun, it is yours to keep as long as you maintain your SOT. Many SOT holders acquire demo guns from friendly local law enforcement requests.
  
  However, if you cannot get a demo letter, an 03 SOT gun dealer has no other way of acquiring a machine gun. If you are an 02 SOT, though, you are legally allowed to build as many machine guns or other NFA devices as you wish (following a certain procedure, of course) and may retain them for as long as you maintain your SOT.
  
  That’s right: you can build a machine gun (full-auto machine gun) legally and keep it for as long as you wish and are in business!
  
  Too Good to Be True?
  
  You might think that this sounds shady, but it’s not. As long as you are conducting legal business, there are all sorts of reasons to build legal machine guns, including proof of concept, experimentation, range rentals, demo guns, movie prop rentals, and more. Along the way, as an incidental to doing business, there is absolutely nothing wrong with enjoying the machine guns you have built or acquired. In fact, it would be stupid not to do so!²⁰

• The escalation of gun violence in our nation has fueled interest in the Type 07 FFL as a way to ensure that the license holder would more likely be exempt from any potential new gun violence prevention regulations or laws covering retail purchases.

The stark reality is that across America, an unknown number of communities are home to “kitchen table” gun manufacturers that are mostly hidden from public view, as the snapshots contained in the next section illustrate.

The Gun Manufacturer Next Door

For this study, the VPC identified gun manufacturers who manufactured fewer than 10 guns in 2020 in the states of Arizona, New Mexico, and Texas. The VPC chose these three states for the historic role Type 1 FFL holders have played in facilitating illegal cross-border gun trafficking from the United States to Mexican cartels and other criminals. While only a snapshot for a specific period in time, the data offers a window into the prevalence of Type 07 license holders in residential areas. For each of the three states listed below, as of April 2024 ATF’s list of FFL license holders still lists the pictured structures as the license holder’s place of business.

For these manufacturers in each of these three states, the VPC not only listed each Type 07 manufacturer by number of guns produced (e.g., 1, 2, 3, 4, 5, 6, 7, 8, 9) but also utilized Google Earth to learn more about the location of the gun manufacturer, the type of structure the manufacturer was housed in, and examples of schools and other public facilities that were located in the same geographic area.

The review revealed a number of commonalities within the production data, structures that are listed as the manufacturers’ production facilities, and geographic location:

• The “place of business” for a significant number of manufacturers is a residential property, in a residential neighborhood, with no easily discerned signage. It is highly unlikely that the presence of the manufacturer would be known by local residents from sight alone.

• Google Earth revealed examples of gun manufacturers that were near schools or other public buildings. This raises concerns not only regarding Type 07 licensees’ proximity to such public buildings, but in the case of schools, the fact that students may be walking by the license holders’ premises from their homes.

The hidden nature of these gun manufacturers is all the more important keeping in mind the unique privileges granted the Type 07 license holder as detailed throughout this report.

Information for each of the three states as well as related slide shows utilizing Google Earth for each state are below.

Arizona

In 2020, ATF listed 868 Type 07 license holders in Arizona. Of these, only 19 percent (168 of 868) were active (having reported manufacturing or exporting firearms of any kind during the year). Seventy-four of these 168 license holders (44 percent) reported manufacturing 10 or fewer firearms in 2020. The table below shows the number of guns reported to have been manufactured by each of these license holders. As of April 2024, ATF lists 1,106 Type 07 license holders in the state.

Using Google Earth to review the listed business addresses for these active Type 07 license holders, nearly half (34 of 74, or 46 percent) appeared to be operating from a residential property. Eight of these low-reporting, residential manufacturers appeared to be near a school or other public facility.

Arizona Type 07 License Holders that Reported Manufacturing 10 or Fewer Firearms in 2020

For more information, with Google Earth photos, please see the slide shows below.

Examples of Arizona Type 07 license holders that appeared to be operating
from a residential property in 2020

Examples of Arizona Type 07 license holders that appeared to be near
a school or other public facility in 2020

New Mexico

In 2020, ATF listed 165 Type 07 license holders in New Mexico. Of these, 12 percent (20 of 165) were active (having reported manufacturing or exporting firearms of any kind during the year). Fifteen of these 20 license holders (75 percent) reported manufacturing 10 or fewer firearms in 2020. The table below shows the number of guns reported to have been manufactured by each of these license holders. As of April 2024, ATF lists 199 Type 07 license holders in the state.

Using Google Earth to review the listed business addresses for these Type 07 license holders, two thirds (10 of 15, or 67 percent) appeared to be operating from a residential property. Two of these low-reporting, residential manufacturers appeared to be near a school or other public facility.

New Mexico Type 07 License Holders that Reported Manufacturing 10 or Fewer Firearms in 2020

For more information, with Google Earth photos, please see the slide shows below.

Examples of New Mexico Type 07 license holders that appeared to be
operating from a residential property in 2020

Examples of New Mexico Type 07 license holders that appeared to be
near a school or other public facility in 2020

Texas

In 2020, ATF listed 1,776 Type 07 license holders in Texas. Of these, 19 percent (345 of 1,776) were active Type 07 license holders (having reported manufacturing or exporting firearms of any kind during the year). One hundred and seventy-three of these 345 license holders (50 percent) reported manufacturing 10 or fewer firearms in 2020. The table below shows the number of guns reported to have been manufactured by each of these license holders. As of April 2024, ATF lists 2,484 Type 07 license holders in the state.

Using Google Earth to review the listed business addresses for these Type 07 license holders, more than a quarter (50 of 173, or 29 percent) appeared to be operating from a residential property. Seventeen of these low-reporting, residential manufacturers appeared to be near a school or other public facility.

Texas Type 07 License Holders that Reported Manufacturing 10 or Fewer Firearms in 2020

For more information, with Google Earth photos, please see the slide shows below.

Examples of Texas Type 07 license holders that appeared to be operating
from a residential property in 2020

Examples of Texas Type 07 license holders that appeared to be
near a school or other public facility in 2020

Is There a Gun Manufacturer Next Door to You?

In conjunction with this study, the Violence Policy Center has developed an online tool that allows the user to enter their home (or any) address to see if there are any Type 07 federally licensed gun manufacturers near them. The tool also allows the user to search for Type 01 gun dealer license holders. The tool can also be used to identify license holders by state or zip code. To access the online tool, please click on the graphic below.

Search for federally licensed gun dealers or manufacturers near you

Conclusion and Recommendations

The proliferation of licensed firearm manufacturers poses a significant threat to public safety. Our research suggests that a significant proportion of licensed manufacturers obtained the Type 07 license to exploit the privileges granted to licensees rather than to operate a legitimate business. In addition, a significant number of manufacturers are located in residential areas, some near schools. Below are recommendations to reduce the number of licensed manufacturers and help ensure that licensees comply with relevant laws and regulations.

Federal Recommendations

• The fees for a Type 07 manufacturer’s license should be increased significantly. The fees for the Special Occupancy Tax (SOT) should also be increased. The fees should also be indexed for inflation.

• Repeal the current restrictions limiting the Bureau of Alcohol, Tobacco, Firearms and Explosives (ATF) to one inspection in a 12-month period and allow ATF to conduct routine inspections of licensed manufacturers.

• The issuance of Type 07 manufacturers’ licenses should be restricted to entities with locations zoned for industrial activities. No licenses should be issued to persons operating from residential locations.

• Manufacturers should be required to routinely submit proof to federal, state, and local authorities demonstrating that the manufacturing facility is in compliance with all applicable zoning laws.

• ATF should ensure that all manufacturers are supplying accurate reports of firearm production and export.

• Further research should be conducted examining the practice of Type 07 license holders with an SOT obtaining or building “dealer sample” machine guns for government agencies (for example, local law enforcement) when, in fact, the weapons are obtained/manufactured for personal use by the license holder.

State and Local Recommendations

• State and local jurisdictions should review FFL holders in their state/community to ensure that they are in compliance with all tax, zoning, business licensing laws, and other relevant regulations.

• States, and where possible local jurisdictions, should implement new standards for manufacturers to decrease the number of Type 07 license holders who have obtained the license for personal use.

• States should establish manufacturer licensing requirements, including the authority to routinely inspect licensees.

• A registry of Type 07 FFL holders should be available, preferably in map form, on local government websites to further inform the public of firearms manufacturing and exporting within residential and other sensitive areas.

Appendices

Appendix One: Increase in Number of Type 7 FFLs, State by State (2017-2022)

Appendix Two: Type 07 FFL Holders That Manufactured 10 or Less Guns by State, 2021

Author and Acknowledgments

Copyright © May 2024 Violence Policy Center

The Violence Policy Center (VPC) is a national nonprofit educational organization that conducts research and public education on violence in America and provides information and analysis to policymakers, journalists, advocates, and the general public.

This study was authored by VPC Investigative Analyst Jamie Benedi. Additional research assistance was provided by VPC Senior Policy Analyst Marty Langley. The study was edited by VPC Executive Director Josh Sugarmann. For a complete list of VPC publications with document links, please visit https://www.vpc.org/publications/.

To learn more about the Violence Policy Center, please visit www.vpc.org.

To learn more about the Violence Policy Center’s Campaign for Gun Industry Accountability, please visit https://gunindustryaccountability.org/.

To make a tax-deductible contribution to help support our work, please visit https://www.vpc.org/contribute.