Tax Preference or Tax Prejudice?

The Whitman exhibition of collector coins in Baltimore
Exhibit One: The Whitman exhibition of collector coins in Baltimore

by Steve Haner

Three times per year a massive coin show is held in Baltimore, packing a large convention space for several days and filling hotel rooms and restaurants all around the area. The photo above is from 2015. The dealers and the buyers include the key Virginia players in this industry.  A 2013 analysis by the Baltimore Tourism Bureau estimated that attendees spend $3 million inside and outside the arena at just one show, and they do it three times a year.  The expo may be an even bigger show now.

A similar show is held in a faded motel on Richmond’s Boulevard, near the Diamond.  I took this photo in October.  The comparison to the Baltimore show is obvious, but there is no other show anywhere in Virginia that compares to Baltimore’s either.  Maybe, just maybe, every show conducted in Virginia combined generates the $3-4 million in local spending that goes on at one Baltimore show.  No one has bothered to do a formal impact analysis.

Exhibit Two: Richmond numismatic show

What does Baltimore have that Richmond does not? It is the other way around.  Richmond and Virginia have something Maryland got rid of – a sales and use tax on collector coins. In fact, Maryland is one of 27 states that have no sales tax on those items, and then of course five states have no sales tax at all, for a total of 32 tax-free states.  Ohio just rejoined the list of tax-free states on January 1. It dumped the exemption a few years back because of one bad-apple dealer, but the local industry visibly shrank and the exemption is now back.

The national Industry Council for Tangible Assets, representing the bullion and coin dealers, surveyed its members and compared the responses from the states which do and do not tax bullion and coins.  You can see the results summarized here: Exhibit Three. Dealers in the tax-free states have more than four times the annual revenue.  Dealers in both kinds of states do mainly shows in tax-free states.  Dealers in the tax-free states, being bigger, sell more taxable items as well and remit almost as much tax as the dealers in taxing states.

Argue all you want about how Virginia ranks overall as a good place to do business – Virginia is a lousy place to do this business. Like everything else, the Internet is taking over. A Virginia buyer on a Virginia retailer’s website will get the tax added on at check-out, and often the transaction ends right there. The buyer clicks off and goes elsewhere.

Oh, in case you haven’t figured it out yet, I’m back with another bill on this issue for a client. In 2015 the Virginia General Assembly did approve legislation to remove the tax on large purchases of gold, silver or platinum bullion. Coins were removed from that bill and remained taxable. But it is the coins that are of interest to the bulk of the dealers and collectors, and only by removing the tax on the coins will the industry be able to build up the native shows, attract one of the national shows, and grow actual retail operations in storefronts. Would you like that, Virginia? Compared to the grants and tax advantages you provide other industries, the impact of this is just pocket change.

Tax policy has always fascinated me, and this issue is a classic example of how tax policy has consequences in a free market. Some may dismiss this effort as another tax preference or even, dare I say it, a loophole. But turn that around and in light of the 32 tax-free states and the tax-free U.S. Mint supply, it seems to me that the existing situation in Virginia represents a form of tax prejudice.

Stephen D. Haner is the principal of Black Walnut Strategies.

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5 responses to “Tax Preference or Tax Prejudice?”

  1. Who do we lobby for this? Don’t say the local politicos. They’re not going to respond or listen. They work for their friends, the money, power, and lobbyists. Dang sure aint regular Joe Blows’ like me.

  2. That’s interesting. I had been thinking about a bag of silver coins as an investment at low silver prices. Sounds like in VA that’s not so favored. Currently I am focus on newer quarters but I’ve been known to pick up a set of mercury dimes at a coin show. Give us some show dates. Sorry B’more sounds good as we have family there.

  3. Steve Haner Avatar
    Steve Haner

    VN – This will be a bill before the 2017 General Assembly, starting next week, so it’s up to your legislators.

    TBill – if you buy silver coins that have no numismatic value, and thus are priced just for their silver value, such a purchase is exempt in Virginia now – IF you spend at least $1,000 (which is a lot of silver at today’s prices.) Most other states have no minimum purchase amount for the tax exemption (but MD does.) For a small purchase, you could shop on-line or pay the tax in a local store. Technically, if you buy on line you still owe the use tax.

    Also in most states the exemption extends to coins which also have numismatic value and sell for more than the metal price. That is what this bill would add to the exemption.

  4. LarrytheG Avatar

    This is getting into one of those esoteric areas of tax policy.

    Would you pay such a tax if you bought a stock or a bond or for that matter a house or piece of land?

    seems like you pay tax on the income earned when you sell.. i.e. the difference between what you paid for it (the basis) and then what it sold for – i.e. the “gain”.

  5. Steve Haner Avatar
    Steve Haner

    Stocks and bonds are specifically exempt from the sales and use tax. For them and for other assets when there is a capital gain at sale, that is taxable. Likewise coins and gold for investment – profits on those are taxable as capital gains. Another reason they should not be subjected to sales tax.

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