Taxes on Swaps

[Number Six]

I was at a "brick and mortar" coin shop the other day. The owner would not take a check; the transaction amount for numismatics was well under $2000 no matter what documentation I might provide, dealer numbers, business license number, etc.. Then I said I could pay cash and he said he would have to charge me state sales tax if I paid with cash. Finally I said I had a standard one ounce gold coin and he said that would work fine, he wouldn't have to charge sales tax. Does anyone know if this is legal for him to operate like this? Also, how are swaps taxed by state and federal tax authorities?

One response was as follows at a coin forum:

"If a dealer does not want to accept checks, that's up to him, and his rules should be respected, regardless of a buyer's credentials.

"An even trade should incur no tax, as no money changed hands.

"Cash deals have no paper trail, thus if he was going to charge you sales tax, he was probably following the law, rather than breaking it ;\)

"...assuming he wasn't just pocketing the money.


"If you are exempt from sales tax, it might be another story."

Is this correct? Thanks.

[LPC]

The rules for sales tax vary by state, but the "swap" would definitely be considered a sale subject to sales tax in Pennsylvania regardless of whether the consideration was cash, check, credit, or a numismatic coin.

61 Pa.Code § 33.1 includes the following definition:

Purchase price—The total value of anything paid or delivered or promised to be paid or delivered, whether it be money or otherwise, in consideration of a sale at retail or purchase at retail not including a rental or license to use.

(emphasis added)

[Quixote]

The exchange would be taxable in Texas, as well. I would be surprised if any state exempts barter transactions from its sales tax.

7. Are barters and exchanges taxable?
Yes. Barters or exchanges are considered the same as making sales or purchases. The retail value of the property or services received is the amount to which tax will apply. For example, assume that you are a retailer of electronic equipment and owe $500 for dental care. In place of cash, you provide a television set from your inventory as full payment. The transfer of the television is considered a taxable sale, and you must collect tax on the $500.

http://www.window.state.tx.us/taxinfo/s ... l#collect7

[The Observer]

The question in my mind relates to this:

Then I said I could pay cash and he said he would have to charge me state sales tax if I paid with cash.

Why didn't you pay him the cash so that you would have paid the obligation owed by you under the state's laws for sales tax?

Instead, what I am seeing is that you participated in a "swap" where there is no indication that you satisfied the tax on the transaction. A sales tax is levied on you based on you making a purchase, the business is obligated to collect such a tax from you. It was quite clear the owner was doing everything he could do to evade or avoid creating such a requirement and you went along with it There is no doubt in my mind that the "swap" will not be reported as a taxable transaction.

I find this very strange behavior for a person who has posted in several threads arguments about millionaires not paying their "fair" share. How did you pay your fair share in this transaction?

[Number Six]

I spoke with the VT tax department and they said all I need to do is fill out their application for a business tax account and I would be exempt, so I will do so.

The cash part was thrown out to the dealer as I was surprised he would not take a check. I did not have the cash on me but I said I could then call BoA have them increase my cash limit which I have set way under this transaction account. I then could have gone out got the cash and come back. I'm not trying to avoid anything, it was the first time I had been told by a New England coin dealer that I would be sales taxed on a purchase.

[Number Six]

In this instance, I think it was driven NOT by #6, but by Mr. Wheezing Load behind the counter.

Mr. Load figures checks leave a trail, cash has to be accounted for, but a swap is easyto hide as it is a matter of "stock on hand."

I would guess Mr. Load is a bit of a tax cheat and lazy. Swapping one coin for another lets him do the least amount of work possible.

Actually the current proprietor is the heir apparent to the Purulent One. He has followed the usual retirement trajectory, buying a jumbo RV after numerous collections have been translated in for the maximal payday. There are good dealers out there who play by all the rules and are true gentlemen. I have been trying to encourage those who are buying and selling collectibles to get their sales and use tax permits so they don't run afoul of the law. By the way, the largest confab of the year for coin and currency enthusiasts will by in Philadelphia next month: Well worth the visit. As for tax laws being followed or enforced there religiously, not very likely.

[jcolvin2]

I spoke with the VT tax department and they said all I need to do is fill out their application for a business tax account and I would be exempt, so I will do so.

The cash part was thrown out to the dealer as I was surprised he would not take a check. I did not have the cash on me but I said I could then call BoA have them increase my cash limit which I have set way under this transaction account. I then could have gone out got the cash and come back. I'm not trying to avoid anything, it was the first time I had been told by a New England coin dealer that I would be sales taxed on a purchase.

Most states exempt a person in the business of selling goods from the sales tax on that person's purchases, with the understanding that the business will collect and pay over sales tax from the ultimate retail purchaser. The flip side of this is that for federal (and possibly state) income tax purposes, the gain will be taxed at ordinary income rates, rather than at the collectible capital gain rate (currently 28% although IIRC subject to offset by other types of capital losses).