There is very little we do in the United States today that is not somehow affected by the tax laws, and buying and selling art and collectibles is no exception. An understanding of basic principles of state and local sales and use tax will help assure that you comply with the law, and may save you money as well. Of course, although I have tried to accurately present this complicated subject, be warned that tax laws change quite often and that state-to-state geography, income, and overall portfolio may change considerably the effect of taxes. You should always consult a competent attorney or tax advisor to update yourself.
Some state and local governments impose a sales tax on retailers for the privilege of retailing tangible personal property. The tax is usually a percentage of the gross sale price of the goods, and is remitted by the dealer along with a sales tax return. While the dealer is actually liable for sales tax, a nearly universal practice is to pass the cost of sales taxes on to the retail customer. In a typical over-the-counter sale of collectibles, the dealer will add the appropriate sales tax to the invoice price of the coins.
The taxable event for sales tax is an in-state retail sale. This leads to two common exemptions to sales tax. First, sales tax is not due on wholesale (dealer-to-dealer) sales, but only where the buyer holds a valid resale permit or certificate from that state or another state. Second, sales by out-of-state retailers are exempt from sales tax if (1) the customer orders goods directly from the retailer; and (2) the goods are shipped from outside the state and no in-state branch, office, outlet or other place of business of the seller participates in the sale.
In certain states, some sales of rare coins are specifically exempted from sales tax for various reasons. States which do not apply sales tax to the sale of money exempt sales of "coins of the realm", defined as coins which remain legal tender of the United States or a foreign government. Others do not tax investment purchases, and assume that "bulk" purchases of over $1,000 are for investment. However, in most states, unless the sale falls into one of the common exemptions, sales tax will apply.
Dealers occasionally ask buyers of expensive items whether they wish goods to be shipped to a friend or relative in a neighboring state, thereby relieving the dealer of the responsibility to charge sales tax. If the item is actually shipped, a sales tax exemption may apply. Never take the item with you and allow an empty package to be shipped out of state. If a dealer wishes to cheat the state, you shouldn't voluntarily participate in the scheme.
Recently, the collectibles marketplace has seen states become much more aggressive in enforcing their right to collect use tax on certain sales. While sales tax is triggered by a dealer's exercise of the privilege of doing retail business in a state, use tax is based entirely on the purchase of property for use in the taxing state. The taxable event is the purchase, not the sale, and the tax is due from the buyer, not the dealer.
Use tax is far more difficult to predict than is sales tax. For one thing, the sale need not take place in the taxing state, provided that the buyer resides there. This means that mail order purchases which are clearly exempt from sales tax nevertheless are subject to use tax. States are quite candid in saying that use tax levels the playing field between local dealers who have to pay sales tax and their out-of-state competitors who don't. Generally, states hold dealers responsible for collecting and remitting use tax on behalf of their customers, and for all practical purposes states will not attempt to collect back taxes from individual customers if the dealer itself is solvent. However, the liability is there, and it can continue indefinitely if the unwary buyer does not file a use tax return.
The states with the largest collectibles markets, such as New York and California, are the most aggressive with respect to use tax. They stipulate that dealers with an in-state office, agent, warehouse or other permanent physical presence have a close enough "nexus" with their states to require collecting use tax on all sales to their residents, even mail order sales having nothing to do with any in-state physical presence of the dealer. But these states have also aggressively audited dealers with no permanent physical presence there, even dealers who just attend local coin shows. For example, in July 1995, California's Board of Equalization announced that attending a single retail coin show in California might create nexus, causing the American Numismatic Association to move its 1996 early Spring fair from Santa Clara to Tucson, Arizona. In June 1995, New York's highest court ruled that Orvis, a Vermont mail order seller of outdoor equipment, acquired "nexus" with New York after Orvis personnel made 12 trips to New York City over a three-year period to monitor product displays at independent stores which carry Orvis products. Orvis's personnel did not attend shows or even make a single sale in New York. Nexus guidelines prepared by the Multistate Tax Commission, an organization created by state taxing authorities, hint that even a short appearance at coin show will trigger nexus.
Fortunately, the nexus trend seems to be changing, as states realize the dangers of discouraging out-of-state dealers from doing business there. In 1997, California changed its law to permit out-of-state dealers to attend up to seven days of California shows without triggering nexus. This change was the result of tireless lobbying efforts by representatives of the Industry Council for Tangible Assets (ICTA) and the Long Beach Coin and Collectibles Expo. This year, ICTA hopes that California will extend this "safe harbor" period to 15 days.
Armen R. Vartian