Becoming a legit coin dealer?

[RobertB]

has anyone ever, or considered, becoming a 'dealer' for the sake of their own interests in collecting? What I mean is has anyone ever actually formed an official state recognized corporation or licensed business for the perks that come with such standing like getting into shows early, hook-ups with other dealers, getting coins at whoelsale, etc..so that they may just simply make it easier and cheaper to get the coins that they want? Would it even work? I know in Florida for about $300 you can form a state recognized business and get a local license. I'd imagine you can make that up quite quickly in savings buying at dealer costs at shows.

[DaveG]

I know a lot of dealers who started as collectors and then became 'dealers' to get better prices and then after a while they started setting up at shows. . .

 

I think you have to do a certain amount of selling to justify your "resale number"( not to mention the paperwork involved) lest the tax authorities decide you're just using the resale number to evade paying sales taxes.

 

I think Bill Jones has posted on this topic in the past and TomB should be able to offer an educated opinion, as well.

[BillJones]

Becoming a dealer can help you get some coins at better prices, but if you think that you can just buy stuff, never sell it and avoid paying sales taxes, you are headed for trouble.

 

If you decide to keep something, you are required to pay use tax on it, which is the same rate as the sales tax. If you don't pay and you get audited and caught, you could be liable for fines and penalties.

 

For me being a dealer aids my collection now and then. Ungrades are easier because I have a pretty ready market for my rejects, providing of course that my rejects were decent coins or tokens from the get-go. You also get to charge off the cost of travel and show fees off your income tax.

 

STILL to be a successful collector - dealer, you have got to be a successful dealer. That means you need to show proftis to justify the expenses your are writing off. The IRS does not take kindly to those who try to write off business losses EVERYyear. And to be a successful dealer YOU can't keep everything that is good. In fact you can keep only a small fraction of it. If you don't have anything good to sell you won't be in business very long. And if the business turns out to be a drain on your finances, you have got to ask yourselft, why or what sense does it make to be in business?

[RobertB]

Yeah I see what you're saying. I think I'd have to do a good volume or make a few really good sells to even save myself money. It's an interesting thought, but perhaps more suited for me when I'm older and perhaps retired. Then I can dedicate the time that will be needed.

Thanks for the info.

[jom]

The other problem with taxes is the fact you'll have to claim a BUSINESS. This means you'll have to report on Schedule C. This means you'll have to not only pay income tax on your profit, you'll have to pay PAYROLL tax also (social security etc etc).

 

You are MUCH better off claiming these sales as Schedule D (investments) and paying the flat 25% (cap gains rates are NOT the same as for stocks, mutual funds and real estate). Of course, then you'll have to convince the IRS you are NOT a business. ARGH!

 

IMO, it isn't worth the trouble because the MARGINS are too small even before tax. It's very difficult to make money in the coin business.

 

jom

 

PS: The 25% only holds for LONG TERM holds. It's end up as ordinary income if it is short term. This is where you'll have the problem proving it is NOT a business.

[RobertB]

Ohhhhh my head hurts.

I think I'll just stay a regular collector. It sounds like paperwork up the [!@#%^&^], and I hate paperwork.

Rob

[BillJones]

Sorry buy you can't claim coins for capital gains tax treatment any more. That went out when a Massachusetts congressman named Jame Shannon got that put in the tax code.

 

Most people in the numismatic community, who follow politics, despised James Shannon for what he did. When he appeared before a trade group he heard it BIG TIME from some dealers, including those who are “yellow dog .” Little Jimmy ran for Massachusetts governor a some years ago, and got his butt kicked. He’s no longer in public life, but his legislation stands. Coins don’t get capital gains treatment.

[jtryka]

Ok, I have a couple of questions as a result of this discussion:

 

1. If coins are exluded from capital gains treatment, where would you report gains from the sale of a collection? Is that not taxable income?

 

2. I thought that coins were not subject to sales tax since technically they are legal tender of the United States, and as such, if the states charged sales tax, they would have to charge tax everytime you walked into a bank and got change for a dollar. So are they now taxable? How do they get around this issue?

 

 

[truthteller]

Bill,

 

I have to question that. Last year and for the preceding 5 years, a dear collector friend has been using capital gains for his coin collection which he accumulated over 10 years and has been selling off slowly for large profits. His tax consultant advised him to claim capital gains so long as he had the invoices to prove his purchase and sale.

 

In CA, the sales tax on coin and numismatic sales is rigorously enforced on every level. After $1000 purchase or higher, no sales tax is required for the entire sale, thanks to vigorous lobbying by the CA coin dealers in early 90's. CA also enforces sales within the states of NY, IL, FL, on CA entities and has Franchise tax board offices in each of those states. In addition, CA has a nexus agreement with out of state coin dealers, with a waiver of 15 coin show days in the state of CA. If an out of state dealer performs more that 15 days of business within the state of CA, he must file as a CA dealer and attain a CA resale permit. Utah has a similar exemption on coin sales with no tax on any coin sale, however, if the purchase is a token or noncoin numismatic item, then there is state sales tax.

 

 

 

TRUTH

[jtryka]

In CA, the sales tax on coin and numismatic sales is rigorously enforced on every level. After $1000 purchase or higher, no sales tax is required for the entire sale, thanks to vigorous lobbying by the CA coin dealers in early 90's. CA also enforces sales within the states of NY, IL, FL, on CA entities and has Franchise tax board offices in each of those states. In addition, CA has a nexus agreement with out of state coin dealers, with a waiver of 15 coin show days in the state of CA. If an out of state dealer performs more that 15 days of business within the state of CA, he must file as a CA dealer and attain a CA resale permit.

 

Now I know why I never go to Long Beach! I don't recall ever paying sales tax on any coins here in Washington.

[Android]

The Central States show will most likely never be in Minneapolis again as a result of Minnesota sales tax laws. In theory, if a Minnesota resident buys anything out of state, on the internet or otherwise, the State requires that you pay Minnesota sales tax (6.5%) on whatever is purchased. Somehow, I don't think this works to well for them.

[RobertB]

I thought it was illegal for a state to tax an item(s) purchased from out of state?

[truthteller]

Yes and no. If you are a one state based dealer, a purchaser from another state should not be taxed. HOWEVER, if the company you purchased from has entities in your state(associate dealers, franchisees, or branch offices), then the state in which the buyer resides will go after taxes. Of course, that state must be very aggressive and the payoff must be logical. For example, Heritage now has auction licenses in several major states, CA, NY, FL, TX and they are obligated to charge sales tax in those states on purchases you make at that auction, even though the company resides in TX. If you are a dealer, no problem, but Heritage will come after you for sales tax as a collector in CA if you buy a coin at auction in NY with a CA address.To avoid this, buy over $1000 in coins and the case is closed.

 

 

 

TRUTH

[jtryka]

Well, you'll all be happy to know that Oregon has no sales tax, so come to Portland for the ANA Money Show in March and spend as much or as little as you want!

[BillJones]

The Central States show will most likely never be in Minneapolis again as a result of Minnesota sales tax laws. In theory, if a Minnesota resident buys anything out of state, on the internet or otherwise, the State requires that you pay Minnesota sales tax (6.5%) on whatever is purchased. Somehow, I don't think this works to well for them.

 

And that's true for just about every other state. If you buy anything in a non sales tax state and live in a sales tax state you are supposed to pay the tax in your home state. About only time people get caught is with automobiles because they have to register them.

[jom]

Now I know why I never go to Long Beach! I don't recall ever paying sales tax on any coins here in Washington.

 

That's not a good reason not to come here. When I buy here from dealers I never "formally" get charged tax. I figure that most of the time the cost is figured in for the tax.

 

Sorry buy you can't claim coins for capital gains tax treatment any more.

 

That's interesting. I'm going to have to look that up. So then what DOES one do when you are selling coins you've had for years? I'm going to go look up Schedule D again and see what is on there....

 

jom

[jom]

OK, I just dug out my Schedule D for last year (2002) and there is a column for "28% rate" with a footnote. The footnote says "28% rate gain ro loss includes all "collectibles gains andn losses". So it seems coins, being collectables, DO have a cap gains. But, like I thought, the rate is HIGHER than for securites sales and real estate (last year it was 20% for long term, not it's 15%).

 

jom

[paigow_johnny]

If you are a dealer, no problem, but Heritage will come after you for sales tax as a collector in CA

And that truly blows...oddly enough though...if you buy from Heritage's ebay or Yahoo auctions, you don't get hit for California sales tax.

[BillJones]

If you are a dealer, no problem, but Heritage will come after you for sales tax as a collector in CA

And that truly blows...oddly enough though...if you buy from Heritage's ebay or Yahoo auctions, you don't get hit for California sales tax.

 

Well what is Heritage to do? The politicians in California spend money like water, and now the state is broke. They have not figured out that the way to fiscal solvency is to encourage business and economic growth. Instead they run a draconian tax system the is ready to jump on any business like a cat on a June bug.

 

The California state government discovered that taxing every business that stepped into their turf was killing the convention business. That prompted them to back off slightly. Still they remain one of the least business friendly states in the Union.

 

When you are deciding your choices of candidates in the 2004 election, consider this. If you ask for another government program and get it, someone has to pay for it. If you are a middle class taxpayer, you can look in the mirror to find out who one of the payers is going to be.