Wayfair Tax Nightmare Comes to Light For Coin Dealers
January 30, 2020
By Patrick A. Heller
As explained during the Industry Council for Tangible Assets meetings at the Florida United Numismatists convention in Orlando earlier this month, dozens to hundreds of coin dealers are now facing requirements to register with state treasury departments outside of their home state.
These new registration requirements are the result of recently enacted legislation and regulations issued by most states as a result of the June 2018 South Dakota v. Wayfair Supreme Court decision. As a consequence, businesses with no physical nexus in another state may still have to register to collect that state’s sales tax and file periodic reports. Yes, they would still have to do so even if no sales taxes are ever collected because the business only conducts wholesale business there or only sells to retail customers, in that state, the merchandise that is exempt from sales tax.
Here are some questions for coin dealers that they must be able to answer to avoid the risk of penalties and interest for failure to register with state treasuries in other states:
- Can you name the state where you are required to register if your combined wholesale and retail sales with businesses and customers in that state exceeded $10,000 in the past 12 months?
- Can you name the state in which a major bullion wholesaler is located where you are required to register if your combined wholesale and retail sales with businesses and customers in that state exceeded $100,000 in any calendar year?
- Can you name the state which hosts multiple major coin shows over the course of a calendar year where you are required to register if a) your combined wholesale and retail sales with businesses and customers (including all sales made at the trade shows) in that state exceeded $100,000 in any calendar year, and b) where retail precious metals bullion and rare coin retail sales are exempt from sales tax only if the transaction is $1,000 or larger?
- Can you name the state that will be hosting this year’s American Numismatic Association World’s Fair of Money where you are required to register if your combined wholesale and retail sales with businesses and customers (including all sales made at this trade show) in that state exceeded $100,000 in a 12-month period?
- Can you name the major U.S. city which will check which out-of-state businesses have registered with that state’s treasury department so that it can send private collection agencies to see if you have filed that city’s business income tax forms if you have made even one sale to a business or customer there?
- Can you name the two states (a number which will likely increase over time) that expect out-of-state businesses that are registered with the treasury department to also file business income tax forms?
- Do you track the quantity and the dollar amount of wholesale and retail sales transactions for almost every state to be able to verify either your compliance with registration requirements or to be able to quickly prove that you are not subject to the registration requirements in response to notices you receive?
If you don’t know the answers to every one of these questions, you may be in legal jeopardy unless your total annual sales are less than $10,000. The state treasury departments do not have the staff to audit out-of-state businesses for compliance with registration requirements and collecting and remitting sales and possible income taxes. Consequently, many are hiring collection agencies around the country to do this work for them, with fees calculated as a percentage of extra taxes, penalties, and interest collected.
The compliance problems do not stop there. Coin dealers will also be responsible for collecting the correct amount of sales taxes, which is complicated because many states also have county and local sales taxes of varying rates. Also, the definitions of what sales may be exempt from sales taxes, because of various precious metals and rare coin exemptions, are not uniform from state to state.
Sales tax laws are now so complicated that even third-party sales facilitators such as eBay that add sales taxes to purchases by buyers in some states often either a) miscalculate the amount of sales tax to add, or b) charge sales tax on exempt items, or c) fail to charge sales tax on taxable purchases. While eBay says that coin dealers can contact them to correct transactions where the sales tax treatment is erroneous, the experience at the company where I work is that customers simply cancel transactions where the tax is erroneously applied—meaning we have already lost thousands of dollars of sales in January 2020 alone.
In order to try to help states collect more sales and use taxes, the Streamlined Sales Tax Governing Board, Inc. was established in March 2000. Right now, 23 states are full members and Tennessee is an associate member state. This organization has approved five companies that offer software to enable businesses to comply with sales tax registration and collection activities. However, all five of them have numerous flaws in their compliance software.
For example, they are not fully accurate in the current status of laws and regulations that would require out-of-state businesses to register with state treasuries. They also have flawed information on the sales tax rates that apply in states with county and local sales taxes and as to which merchandise is exempt from sales taxes.
By the way, compliance with the myriad of state registration and tax collection requirements now impact every business, not just coin dealers. Obviously, the tax compliance burden has become far more complicated than it was before the Supreme Court’s Wayfair decision. In reaching its decision, the Supreme Court was only concerned with the legal arguments of the case, with no regard to the economic consequences the decision would unleash.
Unfortunately, in both chambers of Congress, the Judicial Committees would handle any proposed legislation to ease the compliance burdens imposed on businesses across the country. Both of these committees are currently tied up over President Trump’s impeachment proceedings. There is no real legislative relief on the horizon until at least 2021.
With the inability of coin dealers to receive competent tax information and related services from software companies or third-party sales facilitators, where can they go for assistance?
This not meant to specifically be a sales spiel, but the Industry Council for Tangible Assets is at the forefront in providing up-to-date information that assists its members in understanding the sales tax registration requirements for each state. ICTA’s dealer-members only a quick-reference guide, “Sales Tax Status & Economic Nexus Requirements by State,” shows each state with or without a complete or partial sales tax exemption on the in-state retail sales of coins, currency, and precious metals bullion. This guide also shows each state’s post-Wayfair economic nexus requirements. This resource by itself is worth multiples of the price of a basic ICTA membership. The cost of membership could be a bargain compared to the costs of hiring professional representation to handle any audits initiated by out-of-state treasury departments on a business. If any coin dealers are not already members of ICTA, I recommend that you join today. For more information, go to https://www.ictaonline.org/join-icta. You can also email them at email@example.com or call 678-430-3252.
Full disclosure: I served ICTA as treasurer from 2002 to 2019 and have been a member of ICTA’s board of directors from 2002 to date. This column represents my personal opinion and is not an official communication of the Industry Council for Tangible Assets.