Sales Tax Slice: Virginia’s Gold Bullion Exemption Highlights States’ Varying Treatment of Precious Metals

Last week, Virginia joined the list of states that exempt from sales and use tax qualified transactions involving gold, silver or platinum bullion. Effective from July 1, 2015 to Jan. 1, 2019, these transactions are exempt in Virginia if the total sales price exceeds $1,000 and the bullion meets purity standards and other requirements. The exemption does not apply to jewelry or artwork.

This development is a good example of how sometimes one person’s tax break is another’s loophole. State tax policy in this area sometimes raises concerns from lawmakers and observers, who question the logic of exempting sales of some investments but taxing others (e.g., taxable paintings, jewelry, or stamps held for investment purposes). Detractors could argue that sales tax codes grow too complicated when lawmakers are focused on carving out targeted exemptions rather than lowering tax rates broadly and taxing a wide base of transactions uniformly.

The Industry Council for Tangible Assets (ITCA) and other supporters disagree. For example, in testimony to the Ohio House Ways and Means Committee on April 15, 2015 regarding a similar proposal, ITCA Treasurer Patrick Heller argued that it is not only fair to exempt money but not other tangible personal property, but also that it is appropriate to “draw the line” at rare coins and precious metals.

Like Virginia, many other states exempt some or all transactions of qualified numismatic and precious-metal items. For example, Washington state exempts from its business and occupation tax and retail sales tax gross income that a seller derives from sales of coins and precious-metal bullion. Connecticut, Massachusetts, New York, and others impose dollar thresholds similar to Virginia’s. In fact, the ICTA reports that over 30 states do not tax these transactions, whether via a specific exemption or because the state does not have a sales tax.

Granting new exemptions can pose problems for states, which generally must balance their budgets each year. For example, the Virginia Department of Taxation estimates that Virginia’s change will decrease tax revenues by $313,000 annually. On the other hand, industry advocates argue that the change could spur sales and drive demand for in-state trade shows and auctions. That’s the classic argument about leveling the playing field to compete with other states. In a statement to the Hampton Roads Business Journal in February, rare coin dealer John Feigenbaum said that no coin show would visit Virginia at that time because the state was not tax-friendly to coins and precious metals. He and others believe that attracting new out-of-state customers and trade shows could resolve the projected gap.

Whether or not you support the exemption, you should be aware that this discussion does not affect, say, exchange traded funds that mirror gold or silver's market price. States tend not to impose sales or use tax on transactions of those and other intangibles. Instead, we are narrowly concerned here with transactions of tangible personal property. The devil is in the details, though. It can be incredibly difficult to categorize some things as tangible or intangible: did I buy taxable plastic when I bought that $25 grocery store gift card, or did I buy the right to purchase $25 of nontaxable groceries. But perhaps that is a story for another day.

Continue the discussion on LinkedIn: Should states exempt sales of bullion, coins, and precious metals?

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