End tax on metals?

Legislatures in the states of Arizona and Idaho are part way through the process of considering bills to exempt any paper profits on the buying and selling of U.S. bullion-priced coins (in Arizona) or on bullion-priced coins and precious metals bullion (in Idaho) from their respective income tax. Such an exclusion would also mean that any paper losses would not be deductible when calculating any state income tax liability.

The states of Oklahoma and Utah already have such a law.

The Internal Revenue Service classifies such paper gains as being on “collectibles,” which can carry a federal capital gains income tax liability up to 28 percent on the “gain.” The federal tax liability would not be affected by the pending state exclusions.

If you think about it, does it make sense to consider paper gains on bullion-priced coins and precious metals as taxable at any level of government?

The U.S. Constitution in Article 1, Section 10 reads, in part, “No State shall . . . coin money . . . make any Thing but gold and silver Coin a Tender in Payment of Debts.” Strictly looking at this verbiage, it seems to me that a case can be made that legal tender gold and silver U.S. coins (and possibly such coins that are or were legal tender in any country) are to be treated as money instead of collectibles.

If so, then converting one form of money, including gold and silver coins, into another should be treated similar to 1) exchanging a $1 Federal Reserve Note for four U.S. quarters or, 2) exchanging U.S. currency into euros, pounds, pesos, yen, yuan, francs and so forth. Merely converting money from one form into another is not an income taxable event.

It may even be arguable that precious metals bullion could qualify as not subject to income taxes under this reasoning as they are often held as a monetary asset and not as a commodity.

In the past, former Congressman and presidential candidate Ron Paul introduced legislation to exempt paper gains on the ownership and sale of precious metal coins and bullion from federal income taxes. The bill was never acted upon by Congress.

Conceptually, a U.S. 90 percent silver quarter has never changed in value as it still has the value of a U.S. 90 percent silver quarter. A one-ounce pure gold bar is still a one-ounce pure gold bar. Therefore, neither has really generated “income” that would be taxable. What they have really done is hold a steady value as the U.S. dollar has depreciated from inflation.

From a practical standpoint, politicians and bureaucrats tend to be unwilling to abolish any existing taxes without regard to the logic behind the idea. So, I won’t hold my breath waiting for the federal government to see the logic in exempting gains and losses on precious metals coins and bars from income taxes. I also don’t expect many state governments to go along with the idea. Therefore, it will be interesting to see if either Arizona or Idaho finally enact their respective proposed state income tax exemptions. Stay tuned.

Patrick A. Heller was the American Numismatic Association 2012 Harry Forman Numismatic Dealer of the Year Award winner. He was also honored by the Numismatic Literary Guild in 2016 for the Best Dealer-Published Magazine/Newspaper and for Best Radio Report. He is the communications officer of Liberty Coin Service in Lansing, Mich., and writes “Liberty’s Outlook,” a monthly newsletter on rare coins and precious metals subjects. Past newsletter issues can be viewed at http://www.libertycoinservice.com. Some of his radio commentaries titled “Things You ‘Know’ That Just Aren’t So, And Important News You Need To Know” can be heard at 8:45 a.m. Wednesday and Friday mornings on 1320-AM WILS in Lansing (which streams live and becomes part of the audio and text archives posted at http://www.1320wils.com).

More Collecting Resources

• Are you a U.S. coin collector? Check out the 2018 U.S. Coin Digest for the most recent coin prices.

• With nearly 24,000 listings and over 14,000 illustrations, the Standard Catalog of World Paper Money, Modern Issues is your go-to guide for modern bank notes.