The Michigan state government subjected coins and precious metals bullion to state sales tax until mid-1999. I can’t tell you how many times before then that incredulous would-be customers asked, “You mean there is sales tax on money?”
Before Michigan adopted its coin and bullion sales tax exemption, my company rarely (maybe once a year) made in-state retail sales of such merchandise where the customer spent at least $5,000. Now that these items are exempt from the state’s sales tax, about 94 percent of our in-state retail sales volume comes from transactions of $5,000 or more.
Whereas our in-state retail sales made up about 7 percent of the company’s total volume when we had to charge sales tax on coins and bullion, now such in-state transactions account for almost one-third of our total sales. Other dealers in Michigan have told me similar stories.
Using my background of previously working as a certified public accountant, I was able to calculate that the Michigan state treasury made a profit from granting a sales tax exemption to the retail sales of coins and precious metals.
How was that possible? As our volume grew, our staff size tripled and compensation levels rose even more. That meant that the state treasury collected more individual income taxes from payroll. Further, the Michigan Treasury did a research study and concluded that 38.5 percent of all Michigan payrolls were spent on merchandise subject to sales taxes. Therefore, the increase in the sales tax collections generated by our higher payroll replaced more than 100 percent of the sales taxes we no longer collected on coin and bullion retail sales.
Beyond that, my company’s sales of other merchandise still subject to sales tax (hobby supplies, other collectibles, jewelry and the like) also increased. As our sales volume increased, so did the amount of company business taxes that were paid.
Further, the number of coin shows in Michigan jumped. This resulted in more business for the hospitality industry, increasing employment there and the amount of sales taxes it collected.
Currently, five states do not assess sales taxes at all (Alaska, Delaware, Montana, New Hampshire, Oregon). Another 27 states have complete or partial exemptions from sales tax on the retail sales of coins and precious metals.
Last Thursday, March 3, the Indiana legislature passed and sent to the governor for signature legislation that would exempt from sales taxes any products that would qualify to be owned in a precious metals Individual Retirement Account (but don’t have to be purchased for the purpose) or was legal tender. That would increase the total number of states with complete or partial exemptions to 33.
Offsetting that, the Louisiana legislature is considering a bill to revoke their state’s coin and precious metals sales tax exemption. If this happens, it will occur by the end of this week. Louisiana’s state treasury has been especially hard hit with falling tax collections resulting from lower oil and natural gas prices. Should this exemption be revoked, it is possible that the Louisiana state treasury may suffer an outright decline in total tax collections as dealers in the state shut down or lay off staff.
Conceptually, it is easy to advocate for a sales tax exemption for rare coins and precious metals, yet not extend this exemption to other collectibles that are sometimes purchased as investments (works of art, antiques, jewelry, other collectibles). Among the reasons to support such an exemption and drawing the line there are:
• Sales taxes are a consumption tax. Coins and precious metals are almost never “consumed.” Instead they are usually carefully preserved and eventually resold. When sold, the Internal Revenue Service and state treasuries expect to collect income taxes on the paper gains.
• When individuals sell some forms of coins and precious metals, the dealer purchasing them must send the Internal Revenue Service and the seller a Form 1099-B, the same form used by brokers to report the sales of paper investments. Form 1099-B is not required to be filed for the sales of other tangible items.
• A sales tax exemption parallels the intent of federal law that permits IRAs to own some forms of coins and precious metals as investments, but does not extend to other tangible assets.
• A sales tax exemption coincides with the scope of investment advice given by many prudent investment advisors, who do not recommend other tangible assets as investments.
• Coins are or have been legal tender in their land of issue, a status not shared by other tangible personal property.
• The U.S. Constitution specifically grants the federal government the authority to coin money, but no explicit powers to manufacture any other tangible personal property.
• The United States Mint manufactures commemorative rare coins and proof versions of circulating coinage. It sells these products at prices well above precious metal or face value. The U.S. government has no other programs to manufacture and sell art, antiques, jewelry and the like.
• Some investment firms have established investment funds for the sole purpose of acquiring rare coins. I don’t know of any brokerage firms established to invest in other tangible personal property.
• Investment brokerage firms have also established exchange-traded funds for trading gold and silver. I am not aware of any ETFs set up to invest in art, antiques, jewelry, or other collectibles.
• If you look right under the masthead of the front page of The Wall Street Journal, you will see the price of gold quoted along with a handful of other key financial indicators. No other tangible property values are listed there.
Currently, there are coin and precious metals sale tax exemption bills pending in the Minnesota, Ohio and Tennessee legislatures. The national coin dealer trade association, the Industry Council for Tangible Assets (ICTA, www.ictaonline.org), has received inquiries about beginning to work on exemptions in a few other states starting in 2017.
When bills are introduced in state legislatures that have an impact on government revenues, the legislators seek information on how much taxes are currently being collected in that state. Unfortunately, that is not information that either state treasuries, or the legislative fiscal agencies can identify.
It is not simply a matter of identifying coin dealers in a state, totaling up their annual sales tax collections and using that figure as an estimate of the potential lost tax revenues. Two ICTA surveys in the 1990s found that about half the sales tax collections by coin dealers involved the sale of merchandise that would not be exempt under the coin and precious metals sales tax exemptions. For instance, some dealers are primary jewelry businesses that may have a single coin display in their store. Or a coin dealer may also buy and sell antiques, sports collectibles and other collectibles.
For the efforts to gain coin and precious metals bullion exemptions in the states of Virginia, Indiana and Tennessee, the respective fiscal agencies simply looked at the U.S. Mint’s annual sales of collector and investor coins and assumed that each state was responsible for about the same percentage of that total as proportion of the state’s population to the nation’s total population.
From experience, I know this calculation far overstates the sales tax collections on the retail sales of coins and bullion. Most people in the handful of states that do not have coin and bullion sales tax exemptions border on states that do have them. Or people can purchase from out-of-state dealers, either storing the purchases outside of their home state, or having them shipped in-state and not reporting and paying the corresponding use taxes.
From what I have seen over the years in testifying to legislative committees or providing my research for exemption efforts in Iowa, South Carolina, Pennsylvania, Oklahoma, Texas, Nebraska, Virginia, Indiana, Ohio, Minnesota and Tennessee, the average state treasury or fiscal agency overestimates existing coin and bullion sales tax collections about 1,000 percent!
Here is my proposal on how to help state governments better understand how relatively small amounts of sales taxes are currently collected on the retail sales of coins and precious metals:
Have ICTA circulate a nationwide survey to its membership and other coin dealers to identify how much sales taxes each company collected from the in-state retail sales of coins and precious metals in the year 2015. At the same time, specifically ask for information on the 2015 volume of transactions that are either a) in-state coin and bullion transactions of $5,000 or more, b) total in-state retail sales of merchandise other than coins and bullion that are subject to sales tax, c) the total retail sales volume of coins and bullion sold out of state, and d) the total retail volume of sales of coins and precious metals in transactions of at least $5,000.
An additional benefit to gathering this information is to help preserve existing coin and bullion sales tax exemptions from being lost. Within the past year, there were unsuccessful efforts to repeal exemptions in Maryland, Pennsylvania and Washington. If there was a national database tabulating the impact on coin dealer business in both states with or without exemptions, I think the evidence would demonstrate that the state treasuries would likely lose more tax collections than they gained by revoking such exemptions.
Government bureaucrats sometimes look askance at me reporting actual changes in sales volume for just my own company. The treasury and fiscal agency people would much prefer a larger body of data collected by an independent source or at least a trade association.
At the American Numismatic Association National Money Show in Dallas last week, I met with Kathy McFadden, the executive director of ICTA. I proposed that ICTA circulate a national survey along the lines outlined above. The idea was met with ready acceptance. I will try to help prepare the survey to make it possible for ICTA gather this information that would help state treasury and fiscal agency personnel get a better handle on how much coin and bullion sales tax collections might be lost if any more states or the District of Columbia adopt such a sales tax exemption. However, as in past ICTA surveys conducted among dealers in single states, the identifiable information supplied by any dealer will not be seen by me or any other coin dealer.
If you are a coin dealer who receives such an ICTA survey within the next few weeks, please be sure to respond, and do so as early as you can. Your customers will thank you for doing so. It could also help you grow your bottom line.
Patrick A. Heller was the American Numismatic Association 2012 Harry Forman Numismatic Dealer of the Year Award winner. He is the owner emeritus and 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. Other commentaries are available at Coin Week (http://www.coinweek.com). 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).
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