Dealers and collectors who attended the huge Florida United Numismatists show in Orlando last week had the opportunity to learn more about the coming impact to numismatics and precious metals from the actions of the states and federal government resulting from last June’s U.S. Supreme Court decision in South Dakota versus Wayfair.
The potential effect that this court case will have on businesses and their customers, including coin dealers and collectors, seems to change almost every day. It has so many angles and unforeseen consequences that the subject is not an easy one to grasp.
Jimmy Hayes, the executive director of the Industry Council for Tangible Assets (ICTA), delivered a program early last Friday titled “SCOTUS Wayfair Decision: What You Don’t Know Can Hurt You.” During the program, he detailed some of the confusion, errors, and contradictions in the actions already taken, under contemplation, or potentially by some state governments and by the eBay website. (Note: ICTA members can access the video of this presentation in the members-only section of the www.ictaonline.org website. Non-members can gain access to the video by becoming a dues-paying member of ICTA.)
As one example, Washington state began enforcing its “marketplace” sales tax statute on Jan. 1. Under its provisions applying to Internet markets such as eBay, the platform was considered the seller. Therefore, eBay was required to charge and collect that state’s sales tax to purchases made by Washington state residents. Initially, eBay overlooked some of that state’s sales tax exemptions, such as purchases of numismatic and precious metals items, which it has since corrected. It looks like eBay still has to deal with the unexpected consequence that some Native American residents of Washington are exempt from paying sales tax on any transactions.
Over the course of 2019, eBay will also begin adding sales tax to purchases made by residents of seven other states – Alabama, Connecticut, Iowa, Minnesota, New Jersey, Oklahoma, and Pennsylvania. Other than New Jersey, all of the other states on this schedule have complete or partial sales tax exemptions on the purchases of rare coins and precious metals (and even currency in Alabama). Additional states may yet be added to this list.
It is also under consideration by several states to have the marketplaces that collect the sales tax even charge and collect the tax for items that are exempt from the tax, or where the items are exempt because they are being purchased by a business for resale, even if the buyer has a resale certificate on file with the seller. These issues are yet to be resolved.
Here is some of the other information that attendees at the ICTA program learned:
• As states enact legislation to try to collect sales tax on purchases made by in-state residents from out-of-state sellers, some people mistakenly believe this only applies to Internet transactions. Wrong. Such sales taxes would apply to all purchases whether conducted by telephone, newspaper, mail, email, or on the Internet.
• The Wayfair decision applied to services in addition to the sales of “tangible goods.” This gives states an opportunity to add sales taxes to services such as coin and currency grading fees, attorney and legal fees, advertising, appraisals, and so forth.
• The Wayfair decision approved the South Dakota threshold where out-of-state businesses would have to register with that state’s treasury if it engaged annually in $100,000 or more in sales or 200 or more transactions with South Dakota residents. However, the decision did not establish any minimum state threshold that would apply to any state. Other states that have adopted or are contemplating legislation to require out-of-state businesses to register with the government had used the same threshold (despite having a larger population than South Dakota), while other states are using other minimums, of which some are even lower than South Dakota.
• Each state could adopt laws or regulations requiring out-of-state businesses to register with that state’s government, even if the business does not meet the minimum threshold for sales volume or number of transactions required by a particular state to collect sales tax.
• The Wayfair decision did not extend any guidance as to whether out-of-state businesses would have to collect any county, local, or other sales taxes that may apply in some states, which opens a number of constitutional and compliance issues. It is potentially possible that some businesses may end up having to register with these county, local, and other jurisdictions that impose sales tax in order to collect such taxes.
Further, it is not necessarily clear if the minimum thresholds for sales volume or number of transactions take into account only retail sales. If they include wholesale sales as well, many more businesses would have to register with a greater number of states.
It is also not clear if state governments, in setting their minimum thresholds, contemplated the Uniform Commercial Code provisions affecting certain circumstances. For example, an auction sale of a single lot that consists of numerous items (200 pieces for example) is treated by the UCC as multiple transactions (200 in this example), not as a one-lot sale. The auctioneers’ trade association (www.auctioneers.org) is reviewing the consequences of the UCC provisions. In the least favorable scenario, for instance, an out-of-state coin dealer selling $20 face value of U.S. 90 percent silver dimes to a resident of South Dakota might be considered as having conducted 200 transactions, which would meet that state’s requirement for the business to register with the South Dakota state government.
There is no clarity as to how customers who are erroneously charged sales tax on items that were exempt from that tax in the purchaser’s state could seek to get a refund.
Ten state governments have taken the position that sales tax licenses issued by other states do not qualify to exempt from sales taxes wholesale purchases made for resale. Either the out-of-state business would need to pay sales tax when making wholesale purchases and then try to get the state government to issue a refund, or the out-of-state business would be required to register in that state to obtain a sales tax license – even if it never made any sales in that state!
Coin dealers and other businesses will also run the risk that any other state (except Alaska, Delaware, Montana, New Hampshire, and Oregon, which do not impose a state sales tax) may send a notice of taxes, interest, and penalty due for failure to register to collect that state’s sales tax. This could occur even if no audit was ever done by that state to determine if there was any liability in the first place. Any effort to dispute this assessment would have to be conducted in the other state, which could get expensive. Yet if a business does not dispute such an assessment because it is for a small amount not worth contesting, that could open up the business to being in violation of laws in other states.
Amid all the confusion over what sales taxes apply for an out-of-state business to collect, online merchants such as eBay to collect, or for purchasers to self-report and pay to their own state treasuries, there is the danger that sales taxes may be charged at least twice on the same transaction – even if the merchandise is exempt from sales tax in the state where the purchaser resides. It could also happen that an out-of-state customer may visit a business in another state to make a purchase, and both states would claim the right to collect the sales tax on that transaction.
The bad news for coin dealers is that out-of-state retail sales volume is almost certain to decline as purchasers who live in the 37 states with either no state sales tax or with complete or partial sales tax exemptions on the retail sales of rare coins and precious metals will tend to restrict their purchases to in-state sellers. Residents of the 13 states and the District of Columbia where rare coins and precious metals are subject to sales tax will have the financial incentive to shift their precious metals purchases to intangible forms (shares of gold and silver mining companies, commodity contracts, shares of precious metals exchange traded funds, certificates of precious metals stored at the British Royal Mint, Perth Mint, or Royal Canadian Mint, and the like) or for tangible forms that are stored in Delaware depositories or in other states where there is a sales tax exemption. As an example of the latter, a resident of Kansas or Wisconsin might travel to any of the bordering states to make an in-person sales tax-exempt purchase and leave the items in safe deposit box storage in the state where it was purchased.
As auction companies (both traditional and online) expand the number of states where they have to charge and collect sales tax, bidders will simply subtract the amount of that tax from their bids. As a result, auction prices are likely to decline. As interstate sales generally decline, not always resulting in an increase in in-state sales, numismatic prices may decline.
Another problem for state governments is that virtually all of them are anticipating higher tax collections as a result of their attempts to force out-of-state businesses to collect sales tax. What some state treasuries do not realize is that the overwhelming volume of sales made by out-of-state businesses to a state’s residents already charge and collect the sales tax for the state. As a result, the financial impact of the South Dakota versus Wayfair changes in state laws to such a business will be zero. For instance, before this court decision, Wayfair was already registered and collecting state sales tax in the 44 states other than South Dakota that impose a sales tax.
As coin dealers and collectors, other businesses and their customers, and state governments all find out all foreseeable and unforeseen legal difficulties and financial burdens that result from the Supreme Court’s decision in South Dakota versus Wayfair, the U.S. economy will suffer to a degree. But don’t expect any federal legislation to bring a sensible resolution to the issues until after all parties complain about the impact wrought by this case.
The numismatic and precious metals industry is blessed to have Jimmy Hayes as its executive director. He is one of the more knowledgeable people about the nuances of the Supreme Court decision in South Dakota versus Wayfair plus all of the state legislative and regulatory actions prompted by that decision. In order to best serve coin dealers and collectors, however, ICTA needs to build up its financial resources. If you are not a member yet, go to https://www.ictaonline.org/join-icta to review the options, then click on the “Join ICTA” button to become a dealer member or a non-dealer patron.
Patrick A. Heller is winner of the American Numismatic Association 2018 Glenn Smedley Memorial Service Award, 2017 Exemplary Service Award, 2012 Harry Forman Dealer of the Year Award, and 2008 Presidential Award. He was also honored by the Numismatic Literary Guild in 2017 and 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).
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