ICTA offers map to repeal tax

When North Carolina Governor Roy Cooper signed House Bill 434 into law on July 25, that state became the 36th that has either no sales tax at all or complete or partial sales and use tax exemptions on the retail sales of rare coins and precious metals bullion.

While on vacation in Arkansas just a few days before, it turned out that the Northwest Arkansas Coin Club held their annual coin show nearby. I couldn’t resist stopping by.

Arkansas is one of 14 states and the District of Columbia that do not yet have a coin/bullion sales tax exemption. Since I have been involved in the six successful efforts over the past two years (new exemptions in Indiana, Ohio, Minnesota and North Carolina, re-established exemption in Louisiana, and extension of an expiring Virginia bullion exemption that now also extends to rare coins), I asked several dealers if they had any interest in working on an exemption for that state.

The common response from all of the dealers was that they had already tried once or twice. They had found a friendly legislator to introduce an exemption bill. Several dealers made calls, wrote letters and kicked in funds to support the effort. Then, when Arkansas state treasury and fiscal agency staff stated that this would reduce total tax collections, the bills died in committee with no action.

This strategy can work sometimes. However, in my work with the staff of the Industry Council for Tangible Assets (www.ictaonline.org, contact ICTA at icta@ictaonline.org, or call 410-626-7005), we have developed an alternative strategy that has an extremely high success rate – sometimes within one year!

After Michigan’s exemption was gained in 1999, I later documented that the Michigan Treasury actually collected more sales taxes as well as higher income and business taxes than before the exemption took effect. How could this happen?

As most coin dealers understand, bullion-priced precious metal coins and ingots have very thin profit margins, usually lower than the sales tax rate applicable where the dealer is in business. Because of thin profit margins and the ease with which collectors and investors can purchase out of state without paying sales tax, dealers in states that have to charge sales tax on such sales are at a significant disadvantage.

What I discovered in Michigan after the exemption took effect is that the number of coin dealers eventually rose more than 65 percent, industry employment more than doubled, in-state retail sales increased at least 300 percent and the hospitality industry collected more sales taxes from attendees at larger and more frequent coin shows. For my own company in particular, our staff more than tripled and our in-state retail rare coin and precious metals sales rose 2,500 percent (while other sales categories were only up about 500 percent).

This documentation was used in several states such as Iowa, Pennsylvania, South Carolina, Oklahoma and Nebraska to gain their own exemptions.

Last year, ICTA conducted a nationwide coin dealer survey of their 2015 sales by category, 2015 sales tax collections and attendance at coin shows in states with and without coin/bullion sales tax exemptions. Dealers from 44 states sent in completed surveys that were tabulated.

This survey (which ICTA supplies to state officials, legislators and lobbyists) confirmed that it is virtually certain that per capita sales tax collections in states with complete or partial sales tax exemptions are higher than the states that subject such merchandise to sales tax.

The increase in sales taxes come from multiple directions.

Almost all coin dealers sell other merchandise that would still be subject to sales tax, such as jewelry, antiques, sports cards, comics, other collectibles and hobby supplies. The sales volume of such merchandise in exempt states replaces most of the lost sales tax collections when a coin/bullion exemption takes effect.

As sales expand, so does staffing at coin dealers. The Michigan Treasury did a research study that calculated that 38.5 percent of payrolls were spent on merchandise where Michigan sales taxes were collected. Higher payrolls mean higher sales tax collections.

The significant growth in the number of dealers also contributed to greater industry employment.

When more coin shows take place in an exempt state, fewer in-state dealers travel to out-of-state shows, and instead spend their hotel, restaurant and gasoline expenditures in-state. Further, more out-of-state dealers and collectors travel to the state to attend coin shows, which also boosts tax collections.

With this information, plus other documents mentioned below, ICTA supports efforts by dealers in states seeking an exemption to first meet with the appropriate state officials in the treasury, revenue and fiscal offices to minimize their opposition (or even obtain a neutral stance!) to legislation that has not been introduced yet.

Incidentally, I have seen several instances where coin dealers express the frustration from their perspective of losing sales to out-of-state sellers. Such an orientation is less effective than presenting the issue from the perspective of what would be the fiscal impact to the state treasury of such an exemption. As I previously worked as a certified public accountant, I also can understand and communicate in their jargon (such as when the North Carolina Secretary of the Department of Revenue asked me for the industry’s NAICS codes; we supplied him the list within two days and have now made this an automatic part of our document package).

From our experience in the past several years, it is important for dealers to commit to hiring a lobbyist before any legislation is introduced. These lobbyists can expedite a bill by identifying which legislator would have the greatest clout as the sponsor. For example, a sponsor of a bill who is the chair of the committee that would handle the bill will get it through committee and arrange cooperation more effectively than would a random legislator not even on the committee.

While ICTA can support in-state dealer efforts, it does not have the funds to cover expenses for these efforts. The successful efforts in recent years have cost anywhere from $25,000 to $100,000. These are funds that dealers will have to commit to cover if an exemption effort is undertaken. The lobbyist is typically the largest expense, with the travel costs of ICTA personnel usually totaling $2,500-$10,000.

Each state’s legislative process has its own peculiarities. However, some themes are constant from state to state. By having worked in multiple states, ICTA’s package of supporting documents can answer several questions asked by legislators and bureaucrats.

For instance, state officials almost always over-estimate the potential sales tax collections lost if an exemption is adopted. Then they want to know reasons why coins and bullion merit a sales and use tax exemption but no other merchandise, such as artworks, antiques, stamps and other collectibles, do. By providing extensive documentation on these issues right from the start, there has been relatively little need for dealers and collectors to write letters and make phone calls to gain an exemption.

ICTA is already gearing up to support exemption efforts in 2018. The states of Alabama, Kansas and Tennessee will get top priority. Other possible states include Arkansas, Kentucky and Maine. If you live in one of these or other jurisdictions where coins and bullion are subject to sales and use taxes, you may want to contact ICTA to explore the possibilities. The more states that have such exemptions, the less the likelihood that any existing exemption may later be revoked.

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).