S3514

The Less Than Lethal Act, S.3514, amends Section 4182 of the Internal Revenue Code of 1986 to exempt specific less-than-lethal projectile devices and their associated ammunition from the federal excise tax imposed by Section 4181. This exemption applies to devices not designed to expel ammunition commonly used in handguns, rifles, or shotguns, or projectiles exceeding 500 feet per second, and those not likely to cause death or serious bodily injury. The bill mandates the Secretary to determine device eligibility within 90 days of a manufacturer's request and to maintain an annual public list of approved devices. This legislative change immediately reduces the cost burden on manufacturers of these products, directly enhancing their profitability and market reach. The money trail for this bill is through tax relief. Manufacturers of qualifying less-than-lethal devices will no longer pay the federal excise tax on these products, which is typically 10% or 11% on pistols, revolvers, firearms (other than pistols and revolvers), shells, and cartridges. This tax saving translates directly to increased gross margins for companies producing these items. Companies like Axon Enterprise ($AXON), a leading manufacturer of Tasers and other less-than-lethal solutions, are positioned to capture these savings. Other firearms manufacturers that also produce less-than-lethal options, such as Smith & Wesson Brands ($SWBI) and Sturm, Ruger & Company ($RGR), will also benefit from any less-than-lethal product lines they offer that meet the bill's criteria. Historically, tax exemptions or reductions on specific product categories have led to increased sales and profitability for affected industries. For example, the repeal of the medical device excise tax in December 2019, which was a 2.3% tax on the sale of certain medical devices, led to a sustained increase in investment and R&D within the medical device sector. While direct market data for less-than-lethal device tax changes is limited, the principle of reduced taxation improving industry economics is well-established. The bill's introduction by Senator Barrasso, a Republican, and its referral to the Committee on Finance, indicate a strong legislative pathway for tax-related legislation, especially with bipartisan support (5 cosponsors). Specific winners include Axon Enterprise ($AXON), which manufactures a wide range of less-than-lethal devices. The exemption directly lowers their cost of goods sold for these products, boosting profitability. Smith & Wesson Brands ($SWBI) and Sturm, Ruger & Company ($RGR) will also see benefits for any less-than-lethal product lines they produce that qualify under the new definition. There are no direct losers from this bill, as it only provides tax relief and does not impose new burdens. The next step for this bill is consideration by the Senate Finance Committee. If approved, it moves to a full Senate vote, then to the House for similar consideration, and finally to the President for signature. Key takeaways are that the bill provides direct tax relief to manufacturers of less-than-lethal devices, increasing their profit margins. It also establishes a clear regulatory process for classifying these devices, reducing uncertainty for producers. The legislation aims to modernize tax law to reflect advancements in non-lethal technology.