Coin And Bullion Sales Tax Exemption Efforts Gaining Results, But Also Stumbling Blocks

April 13, 2015

By Patrick A. Heller

When Virginia’s sales and use tax exemption on bullion sales takes effect on July 1, it will be the 32nd state to have complete or partial such exemptions on this kind of merchandise.

The Virginia effort took less than a year. When I led the successful drive for a coin and bullion exemption in Michigan, it took four years.

Already in 2015, the Indiana legislature has passed an exemption bill for coins, bullion, and paper money. However, before it goes to the governor for signature, it will first be reconsidered in a “summer session” in the fall, where a joint House and Senate committee will vote to support or oppose a second effort the pass the bill through the legislature in early 2016. Since there were three unanimous votes for the bill in the House committee, full House, Senate committee, and the full Senate vote was 47-3 in favor, there is a high degree of likelihood that the Indiana exemption could be signed into law by next spring.

Also this year, the Minnesota legislature has passed a bill called for a sales and use tax exemption on the sales of precious metals bullion. However, before this bill goes to the governor for signature, a joint House and Senate committee will review all of the bills passed to assess the total financial impact on the state Treasury. Should the tally of costs exceed the total budgeted amount, there is a possibility that some bills could be left to die.

The recent successes at enacting exemptions in Nebraska and Oklahoma and expansion of exemptions in Texas and Louisiana (the elimination of a minimum size purchase requirement) have sparked interest in other states to seek similar exemptions. In addition to the imminent effort in Ohio, there are four other states now at some stage of seeking an exemption from doing research all the way to contacting legislators to introduce a bill.

On Tuesday, April 14, Kathy McFadden, the executive director of the Industry Council for Tangible Assets (ICTA), me, a lobbyist, and at least one Ohio coin dealer will testify before the Ohio House Ways and Means Committee in support of a coin and bullion exemption bill for that state. In the previous legislative session, the legislature passed an exemption as part of the proposed budget. Ohio’s governor then used his line-item authority to strike the exemption from the finished budget.

In addition to testifying before the Committee on Tuesday, we will also be meeting with officials in the administration to explain that a typical result of enacting a coin and bullion sales and use tax exemption is that state treasuries end up collecting a greater amount of taxes!

It may seem counterintuitive for legislation eliminating a tax collection to have the result of bringing in more taxes. The reason for this is that in-state retail buyers change their behavior after such a tax exemption is enacted. Many in-state residents who formerly purchased commodity contracts or from out of state dealers start patronizing local dealers. Others who simply did not buy rare coins or precious metals bullion at all start doing so when they can deal locally.

How dramatic is this shift in customer behavior. Before the state of Michigan exemption took effect, my company rarely made in-state retail sales of more than $1,000. In the year 2011, my analysis of all transactions for the year showed that 94% of in-state retail sales were made up of transactions of $5,000 or larger! It should be no surprise that my company’s in-state retail sales increased 2,500% from 1997 to 2011.

Along with increased sales volume of rare coins and bullion, our store’s sales of taxable merchandise (jewelry, collectibles, hobby supplies, and the like) also rose. Our staff size more than doubled and compensation grew. A Michigan treasury research study found that 38.5% of payrolls are spent on items on which sales tax is collected. So, as payrolls rise, additional sales tax collections result.

Further, the number of coin dealers in Michigan increased more than 65% since the exemption went into effect. There are also a greater number of coins shows, which are also larger in average size. Many are attended by out-of-state dealers and collectors. So, the hospitality industry collects more sales tax as well.

One question that has come up repeatedly in state after state in committee hearings is why should rare coins and precious metals bullion merit a sales and use tax exemption, but not other tangible personal property that people sometimes acquire with the idea that is an “investment (examples include art, antiques, stamps, gemstones, etc.).”

There are actually a number of reasons why legislatures should draw the line at rare coins and precious metals bullion. Here are the reasons I listed in part of my testimony prepared for the Ohio House Ways and Means Committee hearing on April 14:

• It parallels the intent of Federal legislation that permits Individual Retirement Accounts to own such products, but no other tangible personal property.
• It parallels legislation in about half the states, none of which extend exemptions to stamps, art, antiques, diamonds, and so forth.
• It parallels the scope of investment advice given by many prudent investment advisors, who recommend only these forms of tangible personal property.
• Rare 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 them at prices well above precious metal or face value. The U.S. government has no other programs to manufacture and sell art, antiques, gems, and so forth.
• Several times investment brokerage firms, including Merrill Lynch, have established investment funds for the sole purpose of acquiring rare coins. To my knowledge, no comparable investment funds have ever been created for investments in other tangible personal property.
• Investment brokerage firms have established exchange traded funds for trading gold and silver. I am not aware of exchange traded funds established to invest in stamps, art, antiques, gems, or other collectible tangible personal property.
One thing to keep in mind is that such sales and use tax exemptions can and do get revoked. Florida, Colorado and Ohio each lost existing exemptions. The Florida and Colorado exemptions were restored last century. Ohio’s was revoked in 2005 and may now regain it.

There was an apparently misguided effort by a novice Maryland legislator to revoke that state’s exemption. However, when it was explained how much hospitality industry sales tax collections were made in conjunction with multiple major Baltimore Whitman Coin & Collectibles Expos—far in excess of what any coin and bullion sales tax would bring to the state treasury, this bill is almost certainly going to die in committee.

The governor of Pennsylvania has proposed revoking that state’s coin and bullion sales and use tax exemption one of a list of tax “loopholes” that would be closed to make it possible for the state to offer property tax relief. ICTA is leading an effort to preserve the existing exemption.

Most efforts to gain sales and use tax exemptions on the retail sales or rare coins and precious metals bullion have started either from coin dealers or from some of the legislators. If you are possibly interested in learning whether your state has a partial or complete sales and use tax exemption on rare coin and precious metals bullion sales or any questions on helping gain one in your state, contact Kathy McFadden at ICTA at 410-626-7005.