Should the profits that go to coin collectors when they sell their collections be tax free?
Should coin dealers be exempted from paying income tax?
I ask these questions after I received a press release about U.S. Representative Alex Mooney, R-W.Va., introducing legislation called the Monetary Metals Tax Neutrality Act Sept. 7.
Mooney is quoted this way:
“My view, which is backed up by language in the U.S. Constitution, is that gold and silver coins are money and…are legal tender,” Mooney said in a House Financial Services Committee hearing this week.
“If they’re indeed U.S. money, it seems there should be no taxes on them at all. So, why are we taxing these coins as collectibles?” he asked.
Constitutional issues aside, motivation for the legislation is that increasing prices of gold and silver expressed in fiat paper U.S. dollars are not really gains at all because dollar price increases are simply inflation.
This would make it a more mainstream argument as there is a broader effort under way by the U.S. Treasury to index all capital gains solely due to inflation so they are not subject to tax either.
The devil is in the details, which is true of most things.
How would you interpret the following passage in the two-page Mooney bill:
"7 'SEC. 1071. SALE OF CERTAIN COINS OR BULLION.
"8 ‘No gain or loss shall be recognized on the sale or
"9 exchange of—
"10 ‘(1) gold, silver, platinum, or palladium coins
"11 'minted and issued by the Secretary at any time, or ...'”
Does this mean if you buy an 1804 dollar for $4 million today and sell it five years from now for $8 million, that you should not pay taxes on the gain?
After all, the 1804 dollar is made of silver.
It was issued by the secretary of the Treasury.
What if a coin dealer bought the coin for $4 million and sold it for $4.5 million next week?
Would the $500,000 profit be tax exempt?
Holding periods come into play, don’t they?
The meaning of words can be parsed by tax lawyers and politicians.
The part that follows the “Or” more clearly relates to bullion and changes of price inspired by bullion market fluctuations:
“12 ‘'(2) refined gold or silver bullion, coins, bars,
"13 'rounds, or ingots which are valued primarily based 14 on their metal content and not their form.'’’
However, intent does not necessarily mean the results will match if this language is adopted.
Will coin collectors find after passage of this legislation that our favorite pastime is now tax advantaged as well?
If that is the case, too bad for coin collectors who have specialized in copper and nickel coinage.
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