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1 1 (July 22, 2022)

handle is hein.crs/govehzn0001 and id is 1 raw text is: Congressional Research Service Infcnrming Ih Ieg iltive debat since 1914 Firearms and Ammunition Excise Tax (FAET) July 22, 2022 The federal government first imposed excise taxes on firearms and ammunition over 100 years ago. Today, Section 4181 of the Internal Revenue Code imposes an excise tax at 10% of the manufacturer's price for pistols and revolvers and 11% of the manufacturer's price for other firearms (rifles and shotguns), cartridges, and shells. The firearms and ammunition excise tax (FAET) is imposed on the manufacturer and importer but, as with other excise taxes, is rebated on exports. Thus, the tax applies to firearms and ammunition for domestic use. Because the tax is imposed at the manufacturer's level, the tax is a smaller share of the retail price, because the tax base does not include additional markups. The Alcohol and Tobacco Tax and Trade Bureau (TTB) administers the tax. The tax does not apply to firearm parts, including frames and receivers, but it does apply to complete but unassembled firearms. This In Focus does not discuss occupational taxes or transfer and making taxes collected under the National Firearms Act (such as machine guns, short-barreled shotguns, and silencers). For a discussion of these taxes, see CRS Report R45123, Guns, Excise Taxes, Wildlife Restoration, and the National Firearms Act, by R. Eliot Crafton, Jane G. Gravelle, and William J. Krouse. Exemptions Sales to the Department of Defense and the Coast Guard, state and local governments, nonprofit educational organizations, and for use in vessels and aircraft are exempt from the FAET. Additionally, producers of fewer than 50 guns a year are also exempt from the excise tax. There is also a personal-use exemption for manufacturers, importers, or producers who incidentally produce firearms and ammunition for their own use. History Excise taxes on firearms and ammunition were first imposed in 1919 in the Revenue Act of 1918 (P.L. 62-524), as part of the tax increases associated with World War I. The initial rate was 10%. Although the war ended, some of these taxes remained. The Revenue Act of 1926 (P.L. 68- 553) eliminated the tax on long guns and ammunition, retaining only the tax on pistols and revolvers. The Revenue Act of 1928 (P.L. 75-400) eliminated these taxes as well. The FAET, at 10%, along with other taxes, was restored by the Revenue Act of 1932 (P.L. 71-88), reflecting the revenue needs during the Great Depression. These early taxes reflected a general revenue objective and were not dedicated to a specific use. The Revenue Act of 1940 (P.L. 76-656) raised the tax rate on pistols and revolvers to 11% for a temporary, five-year period. This temporary increase was made permanent in the Revenue Act of 1941 (P.L. 77- 250) and the tax rate on other firearms and ammunition was increased to 11%. The Excise Tax Reduction Act of 1954 (P.L. 83-354) reduced the rate for pistols and revolvers to 10%, leading to the rates that stand today. FAET revenues originally went into the Treasury's general fund, but in 1937, the Federal Aid in Wildlife Restoration Act (P.L. 75-415, commonly referred to as the Pittman- Robertson Wildlife Restoration Act) allocated the taxes on other firearms (rifles and shotguns) and ammunition to the Wildlife Restoration Trust Fund. The fund provides money to the states to support wildlife restoration and hunter safety and education. In 1970, the Federal Aid in Wildlife Restoration Act Amendments of 1970 (P.L. 91-503) also allocated the tax on pistols and revolvers to the trust fund. The connection with wildlife restoration has led to the characterization of the current excise tax on firearms and ammunition as a form of benefits tax, where the tax is paid by the beneficiaries (similar to the gasoline tax, which pays for highways). The link between taxpayers and beneficiaries is imperfect, since some firearms and ammunition are not used for hunting and other recreational users, such as hikers and birdwatchers, benefit from wildlife preservation. However, the link to wildlife restoration has provided support for the FAET over the years from hunting and conservation groups. Tax Collections Revenue from the tax is about equally divided between pistols and revolvers, other firearms, and ammunition. The tax's total yield has fluctuated depending on the economic, social, and political environment, and it increased substantially in 2020 and 2021. Table 1 shows the yield and distribution of receipts for the past five years. Table I. Firearms and Ammunition Excise Tax (FAET) Revenue Total Pistols Receipts and Other Ammunit Year ($millions) Revolvers Firearms ion 2017 $666.7 33% 33% 35% 2018 649.0 33 34 32 2019 633.8 34 32 34 2020 921.6 36 31 33 2021 1,223.8 36 30 34 Source: Congressional Research Service (CRS) calculations from Alcohol and Tobacco Tax and Trade Bureau (TTB), FOIA Electronic Reading Room, Quarterly Breakdown of the Firearms and Ammunition Excise Tax (FAET) Collections, https://www.ttb.gov/foia/ electronic-reading-room.

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