Arizona Governor Doug Ducey recently signed into law HB 2014, a bill to eliminate capital gains taxation on gold and silver coins. It is the latest state to take action to renew the use of gold and silver as money, following legislative efforts in Utah, Oklahoma, and Texas.
No Pro-Gold Legislation at the Federal Level
The only recent pro-gold legislation at the federal level was the Free Competition in Currency Act that was periodically introduced by Congressman Ron Paul. That bill was last introduced by Congressman Paul Broun in 2013, but has not been introduced since. The Free Competition in Currency Act sought to remove three major obstacles standing in the way of using gold and silver as money.
Federal Legal Tender Laws
Federal law declares that United States coins and currency, including Federal Reserve Notes, are legal tender for all debts, public charges, taxes, and dues. That means that if someone offers US coins or Federal Reserve Notes to pay a debt, they must be accepted. The US Constitution, however, forbids the states from making anything but gold and silver coin a legal tender, and it does not grant the federal government the authority to declare a legal tender.
Capital Gains Taxes on Precious Metals
The federal tax code at 26 USC 408(m)(2) defines collectibles and includes, among others: “(C) any metal or gem, (D) any stamp or coin”. And 26 USC 1(h)(5) imposes capital gains taxes on the sale or exchange of a collectible. There are some exemptions in the tax code to allow for IRAs to hold certain gold coins, which is why your gold IRA is able to hold American Gold Eagles and certain other gold coins that the code doesn’t treat as collectibles for IRA purposes.
But if you wanted to use those gold coins in commerce, such as buying a car or paying rent, every time the coin changes hands would be a taxable transaction. The value of the coin would have to be calculated when it’s received as payment and when it’s given as change so that capital gains taxes can be paid. That is obviously horrendously burdensome and a great hindrance to using gold and silver coins as money.
Furthermore, many state governments charge sales taxes and capital gains taxes on the purchase, sale, or exchange of gold and silver coins, providing an extra tax burden.
Ban on Private Mints
One small section of federal anti-counterfeiting law was originally introduced with the Coinage Act of 1864, prohibiting the production of gold or silver coins that are intended as current money. While some who have researched the legislative history of that language state that the bill’s proponents claimed that the language was not intended to shut down private mints that were operating in California, the language seems to be pretty clear that private mintage of coins is outlawed, and that section has been used in the prosecution of private mints.
Movement at the State Level
The recent successes at the state level have been the result of concerted effort on the part of sound money activists. Realizing that it can be more effective to open up the use of gold and silver through action on the part of state legislatures, legislative measures have been introduced in many states to treat gold and silver as money and eliminate the taxation that has been placed on gold and silver coins. While they haven’t all been successful, they are opening up little outposts of freedom and drawing attention to the importance of gold and silver and their use as sound money. The Arizona bill that was just signed into law is the latest, but hopefully not the last, example of a state moving to return to sound money.