Filed 27 May 2013, 15:46 IST. Every price, volume and forecast below is reproduced as published on that date and is not a current quotation. For how the benchmarks themselves are set, see how gold is priced.
Texas legislators advanced proposals to establish a state bullion depository and to exempt precious-metals transactions from state taxation, moving the state toward a position no other had taken. The measures raised a question with a long American history: whether gold and silver are commodities to be taxed on sale, or money, which is not.
The depository proposal was the more unusual half. A state-operated vault holding bullion on behalf of the state and of private depositors would give Texas custody of its own metal rather than relying on facilities elsewhere, and would provide a domestic alternative to private vaulting.
The tax argument
Sales tax applies to the purchase of goods. If a gold coin is a good, buying one is taxable; if it is money, exchanging dollars for it is a currency transaction and taxing it makes as little sense as taxing the purchase of euros. American law has never settled this cleanly. Legal-tender coins occupy an awkward position, and states reached different conclusions, some exempting bullion above a threshold, others taxing all of it.
The practical effect of the tax is straightforward. A sales tax of several per cent on a bullion purchase is large relative to the dealer's margin, so it moves transactions to neighbouring states or online. That is why exemptions of this kind tend to be argued on commercial grounds, retaining a dealing industry, as much as on monetary ones.
The depository argument
Storage of bullion is a service with real requirements: a vault, insurance, audited allocation, and a custodian whose failure does not put the metal at risk. A state depository proposes that the state provide it, which is an unusual role and was argued both as reducing dependence on out-of-state custodians and as a matter of state prerogative.
The critical practical question in any such scheme is allocation. Metal held as specifically identified bars belonging to a named depositor is a very different legal position from metal held in a pool against which depositors have claims, the distinction that decided the outcome for Amber Gold's depositors in Poland the year before, covered in company news, and the same distinction that runs through the ETF section.
For how a bullion price is established before any tax is applied to it, see how gold is priced.
Questions about this dispatch
What was the Texas gold proposal?
Two measures: establishing a state bullion depository to hold metal for the state and for private depositors, and exempting precious-metals transactions from state tax. Together they would have made Texas the most favourable US state for bullion dealing and storage.
Why is taxing gold contentious?
Because sales tax applies to goods, and whether bullion is a good or money has never been settled cleanly in American law. Legal-tender coins in particular sit awkwardly: taxing the exchange of dollars for them resembles taxing a currency conversion. States reached different conclusions, some exempting bullion above a threshold and others taxing all of it.
Why would a state operate a bullion vault?
The arguments made were reducing dependence on out-of-state custodians and asserting state prerogative over its own reserves. The decisive practical question in any such scheme is allocation, whether a depositor owns identified bars or holds a claim against a pool, because that is what determines their position if the operator fails.
This page restores an item first published on 27 May 2013, 15:46 IST at the address below. Cite the publication date rather than the date you read it: the material is a 2011 to 2016 document, and the date is what makes it meaningful.
https://www.bullionstreet.com/news/can-texas-become-1st-tax-free-gold-state/4850