Sales Tax Slice: Not all that Glitters is Gold – The Sales Tax Implications of Buying Bullion, Coins and Currency


 

Gold Bars

As world markets react to the recent Brexit referendum with volatility, some investors may be wondering whether other investments, such as bullion, coin collections, or even currency, are worthwhile. (Investors who feel compelled to stuff their money under the mattress should note that even currency can fluctuate wildly in value. Consider the old ‘Texas redback,’ the dollar of the historic Republic of Texas, which at one point dropped in value to approximately 8 cents, but which now retails for hundreds of dollars on eBay due to its value as a collector’s item.) Luckily for prospective investors who would like to convert their money into tangible form, many states exempt the purchase of bullion, coins and currency from sales and use taxes.

Perhaps reasoning that purchases of bullion are equivalent to transactions in commodities or securities rather than simple purchases of tangible personal property, at least 23 states have adopted special rules regarding its sales and use tax treatment. Many states, like Arizona and Colorado, exempt proceeds from the sale of precious metal bullion and monetized bullion entirely. Other states, like Connecticut and Texas, only exempt sales of gold or silver bullion that are over a certain monetary threshold, such as $1,000. For Florida, the threshold for exempt sales of bullion in a single transaction is $500. In contrast, states like Kansas, West Virginia and Wyoming, offer no sales and use tax exemption for purchases of bullion at all; the transaction is just an ordinary taxable sale of tangible personal property.

If instead of bullion, you’re interested in antique coins, you might want to consider the differing tax treatment of different types of coins in the various states before you convert your savings into coin collecting. While a lot of states, such as Georgia, treat the sale of bullion or coins in an equivalent exempt manner, some states distinguish between types of coins in determining their sales and use tax treatment. For example, Idaho exempts monetized bullion in the form of coins, but taxes coins that were created to commemorate an historical event. Taking a different approach, Illinois exempts coins issued by a government, but taxes other coins, including collectors’ coins.

States also vary in their tax treatment of currency purchases. Numerous states exempt sales of currency along with sales of bullion and coins. However, states like Washington exempt bullion and metal coins, but tax paper currency as tangible personal property unless sold as legal tender. (Sorry collectors of those old Texas dollars!)

New York even uses a three-part test that examines the exchange rate and whether coins or currency are in general circulation to determine whether a currency is a taxable sale of tangible personal property or a nontaxable financial transaction. Specifically, New York examines whether coins or currency are exchanged, if the exchange rate reflects actual currency value and whether the coins and currency are in general circulation. If a transaction does not constitute a “financial transaction,” New York considers the sale of currency a taxable transaction.

Whether it’s in coins, bullion or currency, investors searching for that silver lining in their scramble to weather the Brexit storm may want to keep state sales taxes in mind and keep the change!

Continue the discussion on LinkedIn: Should purchases of bullion, currency and coins be exempt from sales and use tax?

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By Emilie Burnette