Taxers out to get you

July 5, 2018

Pat Heller

For decades, the law has been that if a business sold goods in a state where it did not have a physical presence, it was not required to charge, collect, and remit that state’s sales tax from sales to customers in that state. Instead, it was the responsibility of the purchaser to report such purchases to their state treasury and pay an equivalent use tax.

In practice, virtually no residents paid this use tax.

With the rise of the Internet and other forms of mail-order operations, many businesses – particularly smaller ones – were able to sell nationwide without having to bother with collecting out-of-state sales taxes.

The South Dakota state government saw an opportunity to require out-of-state businesses to register and collect South Dakota sales taxes if they did a significant amount of business with South Dakota residents without having a physical presence in the state.

Two weeks ago, in South Dakota v Mayfair, the U.S. Supreme Court agreed that out-of-state businesses could be compelled to charge, collect, and remit South Dakota sales taxes if their annual sales volume with customers in that state exceeded $100,000, or the number of transactions exceeded 200.

Because this was a U.S. Supreme Court decision, the same tax-collecting opportunity applies for every state in the country. Several states have already taken steps to aggressively pursue out-of-state businesses to collect sales tax on sales to in-state residents.

As state governments are desperate to raise revenues, especially with massive unfunded liabilities for employee pensions and retiree health care benefits, look for pretty much every state to take action similar to South Dakota.

This means that many online auction or storefront operations may soon have to start charging sales tax on their transactions with customers in some other states and file regular sales tax reports with multiple different states.

The good news for buyers of rare coins and precious metals is that five states have no state sales taxes at all (Alaska, Delaware, Montana, New Hampshire and Oregon). About two-thirds of the states have complete or partial sales tax exemptions on the retail sales of rare coins and precious metals. In all, almost 80 percent of the U.S. population lives in states where they would not have to pay sales taxes on purchases of rare coins and precious metals.

A major monkey wrench wrought by this Supreme Court decision is that the sales rate that applies is the one where the purchaser lives. Under pre-existing law, sales taxes were charged at the rate where the business made the sale. There are literally thousands of different sales tax rates across the U.S. when you consider that some counties and cities also charge sales taxes. Requiring each merchant to comply with these thousands of sales tax rates and file forms for each jurisdiction is likely to be a paperwork nightmare, especially for small businesses – the category applicable for most coin dealers, especially those who sell over the Internet.

Because of this looming paperwork boondoggle (which could also become a major problem for customers of coin dealers), I expect there will be quick pressure on the U.S. Congress to alleviate the hassle. One possible easy fix would be for sellers to only charge the sales tax rate where they made the sale and pay all the sales taxes to just one jurisdiction.

Even coin dealers who would not become subject to having to file sales tax reports to multiple states will almost certainly receive forms galore to either register and start collecting sales taxes or to submit proof that they aren’t required to register.

Once again, coin dealers, including pretty much everyone who has ever sold numismatic items or precious metals on eBay or any other online venue, need to support efforts to minimize the paperwork insanity that this Supreme Court decision is just about guaranteed to unleash in the near future.

Almost no coin dealers have the wherewithal to afford a lobbyist in Washington, D.C. However, the Industry Council for Tangible Assets (www.ictaonline.org), the national coin dealer trade association, is a cost-effective way to support a unified larger effort. Best of all, ICTA’s lobbyist is a numismatist and former Congressman. He has already done extensive work with members of Congress on the issue of interstate sales taxation. With sufficient funding from dealer memberships, ICTA is well-positioned to effectively advocate for the interests of coin dealers as well as their customers.

Coin dealers who are not current ICTA members need to protect themselves from the potential risk of the demise of their businesses by joining ICTA. Copper memberships cost only $500, for which dealers receive certificates for hundreds of dollars of grading services. A basic membership is only $300, but those members do not receive the grading service certificates.

Non-dealers can support ICTA’s efforts by becoming Consumer Patrons at $25. Several state and regional numismatic associations have supported ICTA as numismatic organization members, but more are always welcome. Find more information about ICTA membership at http://www.ictaonline.org/membership.

Incidentally, ICTA issued a news release about this Supreme Court decision, posted at http://www.ictaonline.org/index.php?option=com_content&view=article&id=226:warning-to-coin-community-about-supreme-court-s-interstate-sales-tax-ruling&catid=26:news&Itemid=128.

Full disclosure: I have been a member of the board of directors and treasurer of ICTA, which are unpaid volunteer positions, since 2002. This article expresses my personal thoughts and should not be construed as necessarily representing an official ICTA communication or position.