It is a bull**** rule definitely. However most bigger stores I know of would have done the same thing. Only ones I know of that would probably let that go is smaller pawnshops that are more personal and need the business.
Ok so you don't want to sell it because someone had to write down his answers on the form. But why wait until they complete the form and hand you ID with permit and then smile at them and tell them that you are not going to sell them the pistol? The salesman should have said something at the beginning, not stood there and watched then tell them. Goes to show who really cares about customers.