In 1934 the Congress established the National Firearms Act (NFA) under its power to tax. The NFA requires that both natural persons and legal entities like corporations, limited liability companies (LLCs), and trusts register certain firearms like machine guns and short barreled rifles and shotguns, as well as other devises like suppressors with the Department of Alcohol, Tobacco, Firearms and Explosives (ATF) to facilitate the collection of NFA item transfer taxes ranging from $5 to $200 per item. Courts have held that the NFA was enacted as federal tax statute, and not a federal exercise of general criminal power.
In 1991 the Federal District Court court in United States v. Rock Island Armory, Inc. (dismissing indictment under NFA for failing to register a machine gun where federal law precluded registration) explained that “[s]ince its passage in 1934, the registration, taxation, and other requirements of the National Firearms Act ("NFA") have been upheld by the courts under the power of Congress to raise revenue . . . Congress has no enumerated power to require registration of firearms. However, since registration of firearms may assist in the collection of revenue, Congress passed the National Firearms Act in 1934 pursuant to its power to tax."
In Sonzinsky v. United States, 300 U.S. 506 (1937), the Supreme Court upheld the NFA because it “is not attended by an offensive regulation, and since it operates as a tax, it is within the national taxing power.”
As part of the process to register an NFA item, ATF rules have long required individuals, but not legal entities, to obtain a “law enforcement certificate” from their Chief Law Enforcement Officer (CLEO), such as a sheriff or police chief, to support their application. But ever since the Supreme Court in Printz v. United States, 521 US 898 (1997) held that CLEOs cannot be compelled by the federal government to perform federal functions like firearm background checks, most CLEOs now refuse to sign NFA item certificates.
This year the ATF decided to act on “a petition for rulemaking, dated December 3, 2009, filed on behalf of the National Firearms Act Trade and Collectors Association (NFATCA)” which requested elimination of the CLEO certification requirement. The ATF responded to the NFATCA petition by not just rejecting the NFATCA's proposal to eliminate the troublesome CLEO certifications required of individual NFA item registrants, but by extending these CLEO certification mandate to all “responsible persons” of legal entities (e.g., even a newborn baby who is one of several beneficiaries of an NFA item holding trust).
"Because of the Supreme Court's ruling in Printz,” says John Pierce, co-founder of OpenCarry.org, “the ATF proposes a rule sure to send Americans on a wild goose chase for CLEO certifications.”
OpenCarry.org argues in its first comment that the ATF does not have the authority under the NFA's taxing powers to shut off Americans' end run around CLEO certification of NFA item applications via legal entities because the ATF's stated purpose of its proposed rule change is “to ensure that prohibited persons do not gain access to NFA firearms," an exercise of general criminal power not delegated to the ATF by Congress. Additionally, ATF’s proposed rule will necessarily impede the transfer of NFA items and therefore hinder the collection of taxes – the constitutional purpose of the NFA - because transferors will be substantially less able to find transferees who can obtain CLEO certification. Moreover, the ATF-proposed rule justifies the mass registration of legal entities’ responsible parties not to obtain tax revenue but rather “to ensure that prohibited persons do not gain access to NFA firearms."
In its second comment, OpenCarry.org urges the ATF to simply repeal the NFA item CLEO certificate requirement for individuals. This CLEO certificate requirement – which most CLEOs refuse to certify - is the reason Americans are turning to legal entities to own NFA items. If the CLEO certificate requirement for individuals is repealed by ATF, use of legal entity ownership arrangements for NFA items will decline without hindering the collection of taxes under the NFA.