Taxers get more aggressive
January 20, 2017
In 2010, the state of Colorado enacted a law that required out-of-state merchants who made sales to Colorado residents to either collect and remit the applicable Colorado sales tax on the purchase, or if no such taxes were collected, to file an end-of-year report with the Colorado tax authorities showing the details of such sales that were made to Colorado residents.
Enforcement of this law was stayed while the constitutionality of such a law made its way through the courts.
On Dec. 12, 2016, the US Supreme Court declined to hear an appeal of a decision on this lawsuit by the 10th Circuit Court of Appeals. The Appellate decision had confirmed the legitimacy of this law. In declining to hear an appeal, the Supreme Court ratified the Appellate Court’s judgment.
This means that there may now be a legal contradiction in America between the outcome of this case and what the U.S. Supreme Court held in the 1992 decision in Quill Corp v. North Dakota. In the earlier case, the Supreme Court held that states were barred from requiring merchants to collect taxes unless they have a physical presence in the customer’s state. The distinguishing issues may be the technical difference between a sales and a use tax.
A key element of the Colorado law is that it did not require out-of-state merchants to collect Colorado sales tax. However, by supplying that state’s government with the transaction information to send an equivalent use tax bill to Colorado purchasers, the out-of-state businesses effectively make their Colorado customers subject to that state’s sales tax liability.
Other states such as Louisiana, Oklahoma and Vermont have enacted similar legislation that was being held in abeyance pending the outcome of the challenge to the Colorado law. Another case winding through the courts involves the South Dakota law that requires merchants to collect that state’s sales tax if the seller has an “economic presence” in that state. This is a different and more far-reaching requirement than the “physical presence” applied in the 1992 Quill case. This particular case may be the next on the interstate sales tax issue to come before the U.S. Supreme Court.
Now that the Colorado law has been affirmed, I would expect that state to quickly begin aggressive enforcement with sellers nationwide, especially those making sales on eBay and other online venues. Other states have been following the progress of the Colorado law through the courts and will almost certainly adopt similar legislation in 2017.
Another issue has come up with people making purchases from the Denver Mint’s souvenir shop on the Mint premises. Because this store is operated by a private contractor rather than the U.S. government, the state is forcing it to charge sales taxes on its sales. In Colorado, rare coins and precious metals bullion are exempt from state sales taxes, but not exempt from local sales taxes.
Things may well get much worse for numismatic and precious metals bullion investors this year. State governments need (desperately in my opinion) higher revenues to partly offset being forced for the first time ever in the current fiscal year to disclose on their balance sheets the extent of their unfunded liabilities for employee pensions and retiree health care benefits that, nationwide, run into the hundreds of billions to trillions of dollars. Because of this, look for just about every state government to seek ways to increase tax collections.
For instance, a Michigan collector reported receiving a use tax bill for a coin purchase made in Canada. When the buyer crossed back into the United States, he filled out a customs report of the purchase. There were no import duties owed on bringing the purchase into the United States, but Michigan’s tax authorities obviously gathered information from the U.S. Customs reports in order to send out use tax bills. Fortunately for this collector, the items were exempt from Michigan sales and use taxes, which the staff at the Michigan Treasury that prepared the bill did not know. The result was, after some time and hassle, that this particular use tax bill was canceled.
Right now, 34 states have either no state sales and use taxes or complete or partial sales and use tax exemptions for the sales of rare coins and precious metals bullion (although Louisiana’s exemption has been suspended from April 1, 2016, through June 30, 2018). So, for approximately three-quarters of the U.S. population, having to pay sales or use taxes on such purchases made from a seller outside of the buyer’s home state would have little impact (though it would impact making purchases of other products that would be subject to sales tax in his or her home state).
The Industry Council for Tangible Assets (ICTA) has been working with dealers in states to secure exemptions, most recently successful in Indiana, Nebraska, Ohio, Oklahoma and Virginia. For 2017, it is working on securing new exemptions in Alabama, Kansas, Kentucky, Minnesota, North Carolina and Tennessee and on renewing Virginia’s expiring exemption. Other states may be added.
Last spring, ICTA conducted a national coin dealer survey where about 2.5 percent of dealers nationwide supplied details on their 2015 sales and sales tax collections and attendance at coin shows. The result of this survey shows that it is almost certain that states with sales tax exemptions on money and precious metals bullion collect more sales taxes per capita than states that do not have such exemptions.
This increase in sales tax collections occurs because of the increase in the number of dealers in states with exemptions, where 1) higher payrolls generate higher sales taxable purchases (a Michigan Treasury study calculates that 38.5 percent of Michigan payrolls are spent on merchandise where Michigan sales tax is collected) of other merchandise, 2) higher sales of other kinds of merchandise handled by coin dealers (such as jewelry, antiques, firearms, second-hand merchandise, other collectibles, and hobby supplies), and 3) higher hospitality industry sales that result from greater attendance at coin shows.
Beyond working to gain or expand existing sales and use tax exemptions on the sales of money and precious metals bullion, ICTA also supports state efforts to retain exemptions that are being considered for revocation. Just because dealers and collectors may live in a state that now has such an exemption does not mean it will continue indefinitely.
In the past few years, ICTA has spent significant funds in supporting sales tax exemptions, defending existing sales tax exemptions (such as in Pennsylvania and Washington) and other legislative efforts affecting collectors and dealers. An example of other issues is a new California law requiring that sales of autographed items be accompanied with a certificate of authenticity of the autograph, information on the date that the autograph was obtained, and the signature and date of the witness who saw the autograph being written.
This law covers any autographed items that may be seen by a California resident, which means that autographed items offered online are subject to such requirements even if never sold to a California buyer. This law covers encapsulated coins that include courtesy signatures such as those of coin designers or past U.S. Mint directors or currency, on which there is a courtesy autograph. It also, as some worry, may cover the artworks of long-dead artists.
In serving the hobby, industry and numismatic and precious metals bullion patrons, ICTA has incurred expenses in excess of dues and donations over the past few years. In order to continue advocating on behalf of coin dealers and their customers (meaning, you) non-member dealers and members of the public can and should join ICTA today. Basic dealer membership starts at just $300 per year and Consumer Patrons start at just $25 per year. You can join online by going to http://www.ictaonline.org/membership. [Note for full disclosure: I have served ICTA on the board of directors and as a volunteer unpaid treasurer since 2002, but this article should not be construed as an official ICTA communication.]
Silver premium falls
With the price of silver topping $17 early this week, premiums on U.S. 90 percent silver coins have fallen significantly. In a survey of a number of retailers late last week we found $1,000 face value bags for retail sale as low as $1.25 per ounce above the metal value postpaid.
In many recent years, the U.S. Mint’s initial sales for the first release of the new year’s silver American Eagles were much lower than the primary distributors wanted to purchase. As a result, those wanting quick delivery of the new year’s coins in multiple years were paying higher premiums to obtain these coins than if they waited a few weeks. With a much larger initial 2017-date silver Eagle release, there was no temporary jump in premiums this year.