The rare coin and precious metals sales tax exemptions increase state treasury tax collections|
In last week’s column on market information I gleaned at the Texas Numismatic Association show, I forgot to include a significant tidbit.
The state of Texas recently expanded its rare coin and bullion sales tax exemption to all transactions and not just those at or above a $1,000 threshold. I asked several Texas dealers if the expanded exemption had any impact on their sales volume. Every dealer I asked was smiling and said that sales had increased noticeably since the expansion of the exemption went into effect.
As one dealer described it, most of his customers used to have to wait while they saved up at least $1,000 to come in to do a purchase without paying sales tax. Now that there is no minimum threshold, the number of customers coming in to make smaller purchases has taken off. Of course, some of the increase just accelerated sales that might have occurred later when they were in transactions of $1,000 or more. However, from my decades of experience as a coin dealer, I know that many of our customers would have trouble accumulating that amount and not having to use it for other purposes before they spent it in my store.
Before I became a coin dealer in 1981, I worked for seven years as a certified public accountant. When the Michigan sales tax exemption on rare coin and precious metals bullion sales took effect in July 1999, I knew that it would be helpful to document the impact the exemption had on the Michigan Treasury.
My research proved that the Michigan Treasury actually made a profit upon establishing this sales tax exemption!
At first impression, that result might seem impossible. So, let me share with you some of the details of how this increase in tax collections comes about.
Especially for sales of bullion-priced products, the profit margins are so small that any sales tax that might be imposed on such sales would exceed the dealer’s profit margin on the merchandise. Since it is relatively easy to purchase fungible bullion products (a 1 ounce gold American Eagle is the same as another matching 1 ounce gold American Eagle) from out-of-state dealers and store them tax-free in states such as Delaware, dealers in a state that does not have a sales tax exemption are at a significant disadvantage.
In my own company’s experience before the exemption took effect, we rarely made Michigan retail sales of more than $1,000. Bullion transactions of $5,000 or more were virtually unknown. In 1994, Michigan increased its sales tax rate from 4 to 6 percent. Our in-state retail sales volume in the 12 months after the tax rate increased fell almost exactly by one-third compared to the last 12 months at the lower tax rate. As a result, the amount of sales taxes collected was virtually identical for the two periods.
Most coin and precious metals dealers handle products that are not coins or bullion-priced precious metals. Examples of other products they handle are antiques, sports memorabilia, jewelry, stamps and postcards, military historical items, historic documents, and other collectibles. That makes it impossible for any state treasury personnel to calculate the sales tax collected on rare coin and bullion sales because the sales tax reports filed by dealers do not break down the different categories of merchandise sold. However, two surveys of coins dealers in the 1990s, one in Kentucky and one in Ohio, reported that, on average, only about half of coin and bullion dealer retail sales involved rare coins or bullion.
In early 2012, I compared my own company’s different categories of sales for 2011 against what they were in 1997. I picked 1997 instead of 1998 to avoid a distortion wrought by demand from people worried about “Y2K” crashing computers on Jan. 1, 2000.
Here are three significant facts that this analysis of my own company’s results revealed. Because the coin industry had been relatively more prosperous from 1997 to 2011, my company’s out-of-state sales and Michigan wholesale sales had increased about 650 percent. In contrast, Michigan retail sales over the same time frame had soared 2,589 percent! Obviously, the enactment of a sales tax exemption on rare coin and precious metals sales had a huge impact at increasing my company’s sales volume.
Second, when I analyzed all Michigan retail sales transactions for 2011 (using our point of sale software), I learned that over 94 percent of our Michigan retail sales volume in 2011 came from transactions totaling $5,000 or higher! These were the sales that almost never occurred when sales tax still applied!
Since my company is a dealership that is highly concentrated on selling numismatic and bullion items, our 2011 sales tax collections dropped more than 90 percent from 1997. However, the Michigan Treasury had published some research calculating that 38.5 percent of all payrolls are spent on items subject to Michigan sales tax. Since my company’s payroll had grown more than 800 percent from 1997 to 2011, our combined sales tax collected on Michigan retail sales and the sales tax paid by our staff in the ordinary course of consumption exceeded the total tax collections from these two sources in 1997!
The benefits to the Michigan Treasury from the coin and bullion sales tax exemption did not stop there. Because of the higher payrolls, the individual income taxes paid by staff rose more than 800 percent. The company experienced a more than 2,000 percent increase in corporate taxes paid to the Michigan Treasury. Because of the sales tax exemption, more coin shows were held in Michigan, drawing a greater number of out-of-state dealers who brought in more business to Michigan’s hospitality industry (meaning more sales taxes, income taxes, and corporate taxes).
Just for the Michigan Treasury, the total tax collections for my company in 2011 were almost 24 times higher than they were in 1997– despite the sharp drop in sales taxes collected on retail sales of rare coins and bullion.
The benefits to government treasuries did not stop there. The corporate and personal income taxes paid to the city of Lansing soared more than 1,100 percent. Also, as a result for substantial in-state growth of the company, our advertising expenditures in Michigan rose almost 500 percent, generating even more tax collections from those industries.
With the recent coin and bullion sales tax exemption enacted in Nebraska, there are now 31 states that have no sales tax at all or have partial or complete exemptions on the retail sales of rare coins and precious metals. Any of the other 19 states that still tax such sales might want to investigate the potential benefits of also adopting such an exemption. The national trade association for coin dealers, the Industry Council for Tangible Assets (ICTA) has been of substantial assistance to those wanting to push for such exemptions in other states. Contact ICTA’s Executive Director, Kathy McFadden, at 410-626-7007 or email her at email@example.com. An expansion of sales tax exemptions benefits collectors and investors, dealers, and even state treasuries.
Patrick A. Heller was the American Numismatic Association 2012 Harry Forman Numismatic Dealer of the Year Award winner. He owns Liberty Coin Service in Lansing, Mich., and writes Liberty’s Outlook, a monthly newsletter on rare coins and precious metals subjects. Past newsletter issues can be viewed at http://www.libertycoinservice.com. His radio show “Things You ‘Know’ That Just Aren’t So, And Important News You Need To Know” can be heard at 8:45 AM Wednesday and Friday mornings on 1320-AM WILS in Lansing (which streams live and becomes part of the audio and text archives posted at http://www.1320wils.com).
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