Numismatists should be worried about how the hobby will be affected by a labyrinth of tax rules
By Jeff Garrett for Numismatic Guaranty Corporation (NGC) ……
Several months ago, I received the dreaded letter from the State of Kentucky notifying me that my company would be undergoing a four-year sales tax audit. Even though my company keeps impeccable records, no one likes a tax audit – and this one was no different.
The audit was scheduled for early May, giving me time to assemble the required documents. This is no small task considering the many millions of dollars’ worth of rare coins we sell each year. Also of great concern is that Kentucky is one of the 13 to 15 states without a sales tax exemption for rare coins and precious metals.
Because of the sales tax that Kentucky requires for rare coins sales, I do very little retail business in the state. The vast majority of my business is either wholesale, or retail conducted at coin shows in states with a sales tax exemption. My records clearly reflected this, and within one or two days, the focus of my audit turned to “use” taxes. These are taxes due for purchases from out-of-state sellers who had not charged sales tax. These include purchases for office supplies, subscriptions, fixed assets and so forth.
The auditors wanted a complete list of everything purchased on Amazon, for instance. Cleary, states are after revenue lost to out-of-state online sellers. Luckily for me, the audit was completed in a few days with minimal penalties. My advice to any business: Keep good records!
States Emboldened on Sales Taxes
The recent United States Supreme Court ruling on June 21 in South Dakota v. Wayfair, Inc. may change the landscape on how sales taxes are collected in the United States. The recent ruling allows states to require out-of-state sellers of anything to collect and remit sales taxes to its taxing authority. The next day after the ruling, one large online rare coin seller received a letter from the State of Minnesota stating that they would be requiring sales tax to be collected from sales to its citizens. Many other states are sure to follow.
The ruling seems to focus on internet online sales, but the same laws can be applied to catalog and phone sales. This could have a huge impact on the sales operations of many of the largest rare coin sellers in the United States. Even though about 35 states have sales tax exemptions, many do not, including such important markets as New York. Sales to these states that were previously protected by interstate commerce laws may now be subject to collection of sales taxes by the seller. Collectors in states with sales taxes have always been responsible for use taxes on out-of-state purchases. The big difference going forward is that the sellers are now responsible for reporting and collecting taxes due from those states.
Rare coin companies will need to be aware of all states’ sales tax laws for coins sold in other states. The rules vary considerably from state to state. Some have purchase thresholds, others do not. The State of South Dakota has proposed rules that total yearly sales of $100,000 or 200 separate transactions would require reporting and collecting of sales taxes. Other states have already mentioned that model in statements on the issue.
Congress will probably be asked for clarification, but online sales taxes are most certainly here to stay. Every state has made promises of spending that will be hard to keep, and billions of dollars are at stake. Also, this is a political issue as the ruling is seen as protecting brick-and-mortar retail companies from out-of-state online sellers. There will probably be a lot of unintended consequences to these rules changes, and much to be figured out.
The main point of this article is make every collector, investor, and dealer know that it has never been more important to support the hobby’s advocacy group, the Industry Council for Tangible Assets (ICTA). They have worked incredibly hard over the past decades for the sales tax exemptions that our hobby enjoys. They are also working hard to digest and fight these recent changes that could adversely affect our hobby.
ICTA will be holding meetings at the Philadelphia ANA in August. I urge everyone to attend to find out the latest on how the recent Supreme Court ruling affects the hobby. Whether you are a collector or dealer, you should also consider supporting ICTA financially. As I have said for many years, none of us can take the future of numismatics for granted.
Want to see more articles like this? Subscribe to the free NGC Weekly Market Report.
NGC-Certified Seated Liberty Dollars Currently Available on eBay