Tuesday, March 19, 2013

If You Can Afford a Gold Coin, Why Can't You Afford Taxes on a Gold Coin?

Posted By on Tue, Mar 19, 2013 at 5:20 AM

In the annals of Weird Tennessee Legislation, SB0469 is probably not at the top, or even in the middle, of the list. But it is a little strange.

State Sen. Frank Niceley and state Rep. Dale Carr want to exempt some coins — those made of precious metals — from sales tax. For instance, if I wanted to buy a Mercury dime from you and you wanted to charge me 5 or 10 bucks, which is obviously well over the face value of the dime, there'd be no state sales tax. But if you wanted to sell me a steel penny for, say, 15 cents, under this bill it appears that still might be taxable. (You'll see in a second that this isn't clear.)

Now this bill is obviously aimed at the American Eagle coins, which are sold in gold, platinum, and silver and sell for roughly the market value of the metal they're made of. On Monday when I looked, the gold 1-ounce American Eagle coin was going for about $1,600, and the price of an ounce of gold was about $1,600 per ounce. And it makes sense to me that, if you have a coin that's worth $1,600 and I give you paper money for $1,600, then there shouldn't be a tax on it. After all, I'm not really buying your coin any more than someone is buying my $10 bill off me if they give me 10 ones.

But this bill seems designed to mostly for the good of dumbasses:

There is exempt from the tax imposed by this chapter the sale of all coins that are manufactured from gold, silver, or platinum and that are used solely as a medium of exchange in this or another state, the United States, or a foreign nation. The sale of any legal tender is not subject to tax even though the transferee pays an amount exceeding the face amount.

So it appears what Niceley and Carr are trying to do is to protect people who might pay, say, $1,700 for that one-ounce gold coin from having to pay taxes on it, even though its face value is $1,600. (You can see what I mean by it not being clear whether our steel penny is taxable. The first section seems to say that it would be. The second implies it wouldn't.)

But now it's not really looking like the exchange we talked about earlier. After all, if I want 10 ones from you, I don't give you 10 dollars and 10 cents. But if coins are being exchanged like that — I give you $1,700 for a coin that is legal tender for only $1,600 — then that really is a sale, not an exchange. You've put in a slight markup to cover the cost of doing business. So, why shouldn't the state also get a cut? If a coin buyer can afford to pay the business's mark-up, he or she can afford to also pay tax.

See, this is what's weird to me. A person can just buy an ounce of gold and pay roughly market price for it. If a person decides instead to buy an ounce of gold that the Feds have shaped into a coin and pay more than an ounce of gold is worth for it, then that seems like an unwise decision. But one that Niceley and Carr are trying to make look more appetizing. After all, if you have to pay sales tax on your lump of gold and you don't have to pay sales tax on your gold coin, you're probably going to come out ahead buying the gold coin, even if the gold coin is modestly more expensive.

Which, you know, is great for the feds. But I thought that the Tennessee Republicans were basically running the state as if everything the federal government does is suspect and to be resisted. So why are Niceley and Carr trying to help the feds sell gold coins?

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