Ohio Nixes Coin/Bullion Sales Tax Exemption—Reducing Future Tax Collections
July 25, 2019
The Ohio legislature, after going back and forth on the issue, sent a fiscal 2020-2021 budget bill to Governor Mike DeWine’s office that eliminates that state’s existing sales tax exemption on precious metals bullion and bullion-priced gold and silver coins, effective Oct. 1, 2019.
According to budget plans, once again imposing sales tax on such products will result in a net increase in Ohio total tax collections. The truth is, as was confirmed when Ohio revoked a previous exemption in 2005, that the Ohio Treasury will quickly lose more existing sales tax collections than will be replaced by the reinstatement of these sales taxes.
Ohio enacted a precious metals bullion and rate coins sales tax exemption in 1989, after which the Ohio numismatic and precious metals industry flourished. The industry was devastated after the exemption was removed in 2005. Within six months of the revocation, one weekly coin newspaper reported that at least 100 Ohio coin dealers had either closed, laid off staff, or moved to another state. Major in-state coin shows were quickly cancelled and regional and national numismatic organizations dropped Ohio from consideration for future coin show sites.
In 2016, the Industry Council for Tangible Assets (ICTA) conducted a national coin dealer survey of the actual 2015 results for coin dealers in states, sorting the results into dealers in states with no sales tax exemption on retail sales of precious metals bullion and rare coins and dealers in states with either no sales taxes at all, or with complete or partial sales tax exemptions on precious metals bullion and rare coins. The different results were stark.
For dealers in the sales taxable states, their average sales were far lower than for dealers in other states:
In-state retail sales of rare coins and precious metals were 90.3% lower
In-state retail sales of other merchandise (such as jewelry, antiques, hobby supplies, and other collectibles) on which sales tax is collected were 70.3% lower
Sales of services were 82.8% lower
In-state wholesale sales were 61.3% lower
Overall, total in-state sales were 78.8% lower
This trend also continued for out-of-state sales:
Out-of-state retail sales were 88.4% lower
Out-of-state wholesale sales were 52.1% lower
Overall, total out of state sales were 75.8% lower
Including in-state and out-of-state sales, dealers in states with no sales tax exemption on precious metals bullion and rare coins experienced an average of 78% lower total sales than dealers in other states.
As Ohio re-imposes sales taxes on precious metals bullion and rare coins, the lost sales tax collection on other merchandise subject to sales tax will, by itself, almost completely offset the increase in new sales tax collections on retail sales of coins and bullion—a net annual increase in taxable sales by the average dealer of about $35,000. Ohio has a current state sales tax rate of 5.75%, but local jurisdiction tax rates mean the rate varies from a minimum of 5.8% to 8%. If you conservatively use only the 5.8% tax rate, the extra $35,000 in taxable sales would only generate $1,225 of extra tax collections per coin dealer each year.
However, you then have to understand that businesses with lower sales volume will have less need for employees. If you have a repeat of the Ohio experience in 2005 where 100 dealers either closed, laid off staff, or moved out of state within six months, and conservatively figure the average job loss by these businesses is 2.5 employees, then using a conservative average income of $30,000 per employee comes to lost payrolls of $7.5 million annually.
There are two negative effects on lower payrolls in a state. First, lower individual income tax collections. Ohio’s individual income tax rates range from 1.98% to 5%. If you use an average rate of lost individual income tax collections of a conservative 2.5%, that is a loss of $187,500 in income tax collections which, by itself, will exceed the increased sales tax collections on retail sales of coins and bullion.
Second, the Michigan Treasury did a research study in the 1990s and reported that 38.5% of Michigan payrolls were spent on merchandise on which Michigan sales taxes were collected. If you take the conservative loss in payrolls of $7,500,000 x 38.5% x 5.8% you get another loss of sales tax collections of $167,475, which might also exceed the increased sales tax collections on retail sales of coins and bullion.
As business activity declines, you also experience lower collections of Ohio’s Commercial Activities Taxes. I am not well acquainted with this tax to make a conservative calculation in how much loss in such tax collections may occur as a result of this state eliminating the sales tax exemption on coins and bullion, but you can be certain that the correct figure will be more than zero.
As the number of coin shows in Ohio again declines that will mean lower sales by the hospitality industry in hotels, restaurants, taxi services, and gifts, almost all of which would result in lower sales tax collections. I do not have any way to calculate this figure. However, when Florida temporarily revoked its coin and bullion sales tax exemption in the 1990s, the Orange County Convention and Visitors Bureau released a statement that the Florida hospitality industry lost $60 million in annual sales as coin show activity declined. If Ohio only lost 10% of that amount of sales in the hospitality industry, $6 million annually, times the 5.8% tax rate, this would indicate lost sales tax collections of $348,000.
Taken together, the Ohio Treasury is almost certain to see a net decline in annual tax collections of at least $500,000 as a result of eliminating the existing sales tax exemption for precious metals bullion and bullion-priced gold and silver coins. The actual figure is likely to be much higher.
The state of Louisiana suffered a huge loss of tax collections when oil and gas prices plummeted a few years ago. To help balance the budget, the state suspended for 27 months almost 300 sales tax exemptions and tax credits as of April 1, 2016. That included the existing precious metals bullion and rare coins sales tax exemption. At the time, I prepared a similar analysis of how suspending that exemption would impact the Louisiana State Treasury—calculating at net loss of at least $732,500 annually. My analysis was supplied to top officials at the state’s Department of Revenue, Legislative Fiscal Office, and in the legislature. When the actual decrease in tax collections exceeded my projection, a similar coin and bullion exemption was adopted the very next year (one of only four exemptions and credits that were resurrected ahead of schedule in 2017).
For prudent management of Ohio’s tax collections, the legislators and bureaucrats in that state may want to quickly bring back that state’s sales tax exemption on the retail sales of precious metals bullion and rare coins.
Disclaimer: The above commentary is personal to me. Although I have served ICTA as treasurer and on the board of directors since 2002, participated in the conduct and analysis of ICTA’s 2016 dealer survey, and twice testified before committees in Ohio’s legislature in the successful effort to regain the bullion and bullion coin exemption a few years ago, this document is not an official ICTA statement of position. For more information about ICTA go to www.ictaonline.org.