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Dealers Unsung Heroes in Sales Tax Wins
By Diane Piret
September 26, 2007 |
In the Aug. 14 Numismatic News Letters section, a reader, John Matlick stated:
"How about the interstate sales tax issue? We have a law on our books prohibiting coin companies from charging local state sales tax to customers in other states." He later adds "Why should I, in California, pay sales tax on say, a Heritage auction item in Texas, just because California and Texas signed a pact? Last I heard, the federal government trumps the state in this regard."
It was obvious that there were some misconceptions on the subject, so I thought perhaps a Viewpoint could help clear things up. To set the record straight, it is the coin, currency and precious metals dealers who should be thanked for achieving sales and use tax exemptions.
Contrary to what Mr. Matlick's comment would imply, these laws don't "prohibit" coin companies from charging state sales taxes. Indeed, the dealers don't benefit from collecting sales tax since dealers are forced by the state to collect the sales tax and then remit the money to the state. It is the collector and investor customers who directly benefit from exemptions by not having to pay sales tax on their numismatic and precious metals purchases. Currently, there are 29 states that have some form of exemption from sales and use taxes for rare coin and precious metals items.
I have helped work toward and testified on behalf of many of these sales tax exemption laws. With more than 35 years experience in the numismatic and precious metals field, for the past 18 years I have been the industry affairs director for the Industry Council for Tangible Assets (ICTA). ICTA is the nonprofit trade association that specializes in government affairs representing the rare coin, currency and precious metals community.
Of the 29 exempt states, five have no sales tax at all. But for the other 24 states, it has taken a tremendous amount of hard work and money to get these exemptions passed. While sometimes collectors have been involved with these efforts, it is most often the coin dealers who pay the costs (lobbyists, lawyers, transportation, etc.) out of their own pockets to get these laws passed. Many dealers spend a significant amount of their time and must close their shop or office to travel to their state capital to testify on behalf of these bills and speak with legislators. Indeed, the exemption in California was achieved and funded solely by coin dealers.
Money spent on these efforts also includes the annual dues that dealers pay for ICTA membership. ICTA staff works with them and we provide information, critical documents, strategy, testimony and other assistance.
Since the word "exemption" usually means the state believes it will lose tax revenues, this type of legislation can be a difficult "sell" to state legislators. There are many benefits to the state, but, legislators are mostly concerned with what an exemption would cost the state and prefer to stick with the "bird in the hand" they know. These sales tax exemption laws often take several years to pass; some never do.
Often these laws have a minimum dollar amount that a transaction must reach before the exemption kicks in. So, for instance, in a state where there is a $1,000 minimum (such as California), a $700 retail coin trade will be subject to California sales tax. These minimums for coin transactions vary, but are usually either $500 or $1,000.
It is important to recognize that no sales tax exemption is necessarily forever etched in legislative stone. As states look for additional revenues, sales tax exemptions are often one of the first places they look to regain tax income. Right now we are working to save the existing exemption in one northwest state. As you may be aware, one of the oldest exemptions, Ohio, was rescinded a few years ago. Over the years, both Colorado and Florida lost their exemptions, and it took more hard work (and a lot more money from dealers to pay the expenses associated with educating the legislators) to get them reinstated. These reinstatement efforts took several years to accomplish.
This letter also raises another important sales tax issue, that of inter-state transactions.
Using California as an example, there are several reasons why a collector might be required to pay sales (or use tax) on something he purchased from an out-of-state dealer. While the following is not an exhaustive and technical explanation of all of these, a couple simple examples are:
1. Companies sometimes have enough physical "presence" (called nexus) in another state that will require even transactions done from their home office to be subject to the other state's tax laws.
For example, in California, one of the ways this can occur is if a dealer from another state sets up at coin shows in California for more than 15 days a year. If this nexus applies, those out-of-state companies must collect and then send the sales tax amount to California just as though they had a shop there. (This applies whether they are at a California coin show, at an auction in New York, a store in Texas, or a state that exempts coins entirely.) So, for example, if a Texas company has nexus in California and a California customer calls the Texas store and places a telephone order that is less than the $1,000 minimum required for the sales tax exemption, the Texas company must collect the California sales tax and send it to California (not Texas.) However, if the transaction is over $1,000 worth of exempt items, the California exemption will go into effect and the transaction will be exempt from the sales tax.
2. If the out-of-state dealer has a branch office physically located in California, the dealer will be required to collect and remit the sales tax.
3. While many numismatic items are covered by the exemption, some are not. In California, for example, collectible banknotes are not exempt.
You may be aware that if you live in a state that does not have an exemption and you make a purchase from an out-of-state dealer (one who has no business presence in your state), and the dealer ships the item from out-of-state to you (at your non-exempt address), the dealer is probably not required to collect and remit the sales tax. What comes as a surprise to many, however, is that you are required to pay your state the compensatory USE tax (usually the same percentage as the sales tax.) Your home state may not have jurisdiction over an out-of-state merchant, but it does have jurisdiction over its own residents.
The states recognize that residents are not very likely to voluntarily pay the state any Use taxes on out-of-state purchases, and it is very difficult for the state to enforce tax collection on these transactions. To this end, many states now have included a line item on their state income tax forms demanding you list your out-of-state purchases and remit the appropriate tax. They may even remind you that you are signing your tax return attesting to its truthfulness.
So to solve their "problem", for the past few years the states have all been working together on a multi-state pact called the Streamlined Sales Tax Agreement (SSTA). Under this agreement, out-of-state merchants would be required to collect sales/use taxes on all transactions, even those shipped outside their home state. The U.S. Congress must grant the states this authority to collect sales taxes across state lines (so yes, the Feds do trump the states on this one). And there is sympathy in Washington for the plight of states that believe they are losing sales tax revenue to Internet and other mail and phone order sales.
An increasing number of states continue to sign on to the SSTA. In fact, in our current work to save an exemption, that state's Department of Revenue has already offered some resistance to our arguments by citing the future effects of the state's signing on to the SSTA. One of the biggest concerns for our hobby/industry is that only existing exemptions with no minimum or cap will be "grandfathered." Since most of the exemptions for coins and precious metals do have a minimum transaction amount, these exemptions would all be lost as the SSTA is currently written.
ICTA will, of course, be fighting against the SSTA in general (as will many others) and especially against the provision relating to caps and minimums on sales tax exemptions. But since ICTA is funded mostly by dues and donations from the dealers, it is really these dealers who will be paying for this fight on behalf of the collectors and investors who buy coins, currency and precious metals.
While I certainly don't want to minimize the value of ICTA's participation in these battles, we all should give credit where it is due. Here's to the dealers who make so many of these exemptions possible!
ICTA is a nonprofit 501(c)(6) corporation funded by dues and donations. Individuals as well as businesses may contribute to ICTA to fund our efforts. For more information see our website at www.ictaonline.org.
Diane Piret is Industry Affairs director for the Industry Council for Tangible Assets.
Viewpoint is a forum for the expression of opinion on a variety of numismatic subjects. The opinions expressed here are not necessarily those of Numismatic News.
To have your opinion considered for Viewpoint, write to David C. Harper, Editor, Numismatic News, 700 E. State St., Iola, WI 54990. Send e-mail to david.harper@fwpubs.com.
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