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To collectors, it seems obvious that sales and use taxes should not apply to a medium of exchange. When people go to a bank or credit union to convert larger denomination currency into smaller denominations and coins

To collectors, it seems obvious that sales and use taxes should not apply to a medium of exchange. When people go to a bank or credit union to convert larger denomination currency into smaller denominations and coins, there is no sales tax charged on such an exchange.

Yes, state governments that imposed sales and use taxes in the past considered the purchase of numismatic coins and precious metals bullion to be subject to those taxes. Today, there are five states that do not impose a statewide sales tax, another forty states that have adopted complete or partial sales and use tax exemptions on bullion, coins, and currency, and the state of Nevada has a partial exemption by regulation. Only Hawaii, Maine, New Mexico, Vermont, and the District of Columbia do not yet have any such sales and use tax exemptions. There are currently bills in the Maine and Nevada legislatures to enact statutory bullion and coin sales and use tax exemptions.

Against this background, there are many state governments concerned about the potential loss of federal funding. Additionally, such as in Maryland, the prospect of many of that state’s residents losing their federal employment also means lower income and sales tax collections in that state. As a consequence, the legislatures in the states of Maryland, New York, and Washington are considering bills that would eliminate existing sales and use tax exemptions for precious metals, bullion, and coins.

There have been four states in the past where states revoked or suspended coin and bullion sales and use tax exemptions. In all four of these states, the same or similar exemptions were later reinstated. A major factor leading to the return of these exemptions is that they generate economic growth. Similarly, when these exemptions were canceled, the loss in other tax collections exceeded the slight increase in sales and use taxes collected on the retail sales of bullion and coins.

While these legislatures are considering the elimination of their coin and bullion sales tax exemptions, let’s review the variety of reasons that support establishing and maintaining such exemptions.

Constitutional and medium of exchange considerations.

1. Sales and use taxes apply to assets that are consumed. In contrast, bullion, coins, and currency are not consumed except in rare instances. First, they have served as a medium of exchange, meaning that they are meant to serve as a store of value until they are used to trade for other goods or services—they are not consumed.

2. Additionally, bullion, coins, and currency may be acquired as investments, which are also not consumed. Whether or not purchased as a hobby or as an investment, the Internal Revenue Service and most state governments expect to collect income taxes when bullion, coins, and currency are resold at a paper gain. The IRS even requires dealers to file Form 1099-B when purchasing some forms of precious metals bullion from non-corporate sellers. This confirms that the federal government does not consider such assets to be “consumed.”

3. Article 1, Section 8 of the U.S. Constitution states, “The Congress shall have Power . . . to coin Money, regulate the Value thereof, and of foreign Coin . . . .”

4. Article 1, Section 10 of the U.S. Constitution states, “No State shall . . . make any Thing but gold and silver Coin a Tender in Payment of Debts . . . .”

5. Right under the masthead of The Wall Street Journal are listed several key financial indicators. One of them is the spot price of gold.

Bullion, coins, and currency merit sales and use tax exemptions, unlike other tangible property.

1. It parallels the intent of federal legislation that permits Individual Retirement Accounts to own many of these products but no other tangible personal property.

2. It parallels existing legislation in forty states, none of which extended exemptions to stamps, art, antiques, diamonds, and so forth.

3. Some states even exempt gains and losses from gold and silver transactions from the respective state’s income taxes.

4. Coins and currency have been “legal tender” in their land of issue, a status not shared by other tangible personal property.

5. The United States Mint manufactures commemorative coins and proof versions of circulating coinage. It sells them at prices well above precious metal or face value. The United States Bureau of Engraving & Printing manufactures commemorative versions of circulating currency that it sells at prices above face value. The U.S. government has no other programs to manufacture and sell art, antiques, gems, and so forth.

6. Investment brokerage firms have established investment funds for the sole purpose of acquiring coins. I’m not aware of investment funds created for investments in other tangible personal property.

7. Investment brokerage firms have created exchange-traded funds for trading gold, silver, platinum, and palladium. I am not aware of any exchange-traded funds established to invest in stamps, art, antiques, gems, or other collectible tangible personal property.

Bullion, coin, and currency sales and use tax exemptions stimulate economic growth and job creation.

1. After the state of Michigan