Taxing Coin Sales: A Bureaucratic Nightmare In The Making?

by Al Doyle for CoinWeek ……….

It’s potentially one of the bigger – but least publicized – issues involving the purchase of precious metals, rare coins and every other item sold by mail order. In the political world’s never-ending quest for more money, Congress is giving serious consideration to forcing merchants to collect sales tax from every customer regardless of where they reside.

The U.S. Senate recently passed the Marketplace Place Fairness Act of 2013, which would force sellers to collect and remit taxes to hundreds of states and other governmental units. A largely identical version has been sent to the House of Representatives where the bill is known as HR 684.

sales tax coins 2 Taxing Coin Sales: A Bureaucratic Nightmare In The Making?This violates the long-held legal principle of nexus, or physical presence. It is generally recognized that states can require retailers within their borders to collect sales tax from customers who do business at a store or other piece of property. Transactions involving a customer outside the state are not subject to sales tax unless the vendor also has a storefront in another jurisdiction.

For example, Arkansas-based Wal-Mart would be required to collect sales tax on an internet transaction made by a customer in New Mexico because Wal-Mart has physical locations in that state.

It doesn’t take much imagination to contemplate the bureaucratic nightmare this could be to businesses, especially smaller operations. Even something as mundane as selling a silver Eagle or inexpensive collector coin on eBay could require dealing with state tax collectors thousands of miles away. Mike Fuljenz, owner of Universal Coin & Bullion in Beaumont, Texas described what could happen if HR 684 becomes law.

“There are all sorts of nuances,” he warned. “The American Society of Pension Professionals and Actuaries believes it’s possible that states could impose all kinds of fees and taxes on gold in 401(k)s. This also includes the 600 or so Indian tribes that could audit you. Our lobbyist Jimmy Hayes [a former member of the House of Representatives from Louisiana] says they could possibly make you go back years and pay sales tax on past transactions.”

Another feature of HR 684 comes from the “You can’t make this stuff up” school of bizarreness.

“Foreign dealers and the U.S. Mint are exempted,” Fuljenz said. “How un-American is that? It’s going to put U.S. dealers at a huge disadvantage against the Chinese and other sellers on eBay.”

In many instances, sales tax charged on bullion exceeds the slender profit margin for the items sold.

“A lot of the items we sell have a 1 to 20 percent markup,” Fuljenz said. “This isn’t clothing or jewelry with a 100 to 200 percent markup.”

The current attempt to make every transaction across state lines taxable is nothing new, according to Diane Piret of the Industry Council for Tangible Assets.

“They have been trying to pass something like this – a use tax – since the 1950s – but they can’t enforce it,” she said. “States ask residents to report purchases from out of state, and people won’t do it. States are desperate for the tax money. This potentially makes you subject to all 50 states, U.S. territories and tribal nations. It’s not just the internet. This would be national interstate collection. It affects every mail or phone order.”

Piret brought up another issue regarding taxes on the purchase of gold, silver and platinum.

“These are acceptable investment products for IRAs,” she observed. “This would be taxing investments.”

The 30 states that don’t tax bullion and (in most cases) rare coins and collectible currency have a large competitive advantage over states that treat the metals as just another taxable item. To cite one example, relatively little gold and silver is sold in Wisconsin coin shops, while several retailers just across the state line in otherwise high-tax Illinois do a steady business with customers who drive south to buy in a tax-free location.

“If this bill passes, it’s going to be a mess doing business in the 20 states that have a sales tax,” said Fuljenz, who has customers across the nation. “It will change the way we do business.”

It’s often said that death and taxes are the only sure things. Add government’s never-ending efforts to increases taxes to that list.

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7 Comments on "Taxing Coin Sales: A Bureaucratic Nightmare In The Making?"

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  1. Louis says:

    Just to be clear you are not talking about the separate legislation on internet taxes, right? One reason I mention that is that in the internet tax bill small businesses, which they define as those who have less than $1 million a year in sales, are exempt from the new proposed internet tax. One reason is it would be a huge imposition on some person just selling a few coins on e-Bay to figure out all the different sales taxes (though some claim that can be done easily with programs).

    • Brian says:

      I’m not going to speak for the author, but say I owned a small coin shop and averaged sales of just over 1 oz of gold a day and 50 oz of silver a day (pretty small quantities). My sales would be just at 1 million (assuming 1400/oz Gold & 22/oz Silver) x 365 days. Although my margins and profit would be small I’d qualify for the nightmarish tax bill. Not to mention the Constitution says Gold & Silver are money and that money cannot be taxed. Why is it not enough for the government to get the income tax? Why do they insist on in obama’s words “stepping on the throat” of small business?

      • Jason says:

        The Constitution says nothing about gold and silver “being money.” It only says states can’t pay their debts with anything but gold or silver. Do you get the difference?

        • Jason says:

          Just in case:

          “No State shall enter into any Treaty, Alliance, or Confederation; grant Letters of Marque and Reprisal; coin Money; emit Bills of Credit; make any Thing but gold and silver Coin a Tender in Payment of Debts; pass any Bill of Attainder, ex post facto Law, or Law impairing the Obligation of Contracts, or grant any Title of Nobility.”

  2. Schnurri says:

    Some people can just stop doing business short of a million. Yes, I know that some businesses can’t do that but some can.

  3. Dora James says:

    So if I go to the bank and buy a roll of quarters, I will also have to pay a tax on it? Gold and silver today, regular coins tomorrow. Tax, Tax, Tax.

  4. Robert A. says:

    As a small business owner and collector this would be an accounting nightmare for me. I am in the business of working with coin collectors and folks that enjoy there coin collecting as a hobby. Even though there are invoices that are generated each state has a different amount to keep track of. In the state I am in we do have to collect sales tax for walk in customers that is why 99% of my business is with my customers in other states. Another attempt to put the hard working small business man out of business, and lets not forget about the youngster that wants to get involved as a collector?

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