PHOENIX — Gov. Doug Ducey agreed Monday to create a tax break for people who invest in certain gold and silver coins.
The new law says the rules on reporting, and paying taxes, on capital gains to the state do not apply when the profits are reaped by selling off coins made by the U.S. Mint.
Ducey’s action was a bit of a surprise, given he has vetoed similar measures twice before. But his press aide Daniel Scarpinato insisted this version was different.
“It’s very consistent with the governor’s approach, which is reducing income taxes,” Scarpinato said.
The new law is quite limited in scope, however. The capital gains laws remain the same for those who invest in rental properties, gold bouillon, ceramic dolls or classic cars: If an item is bought for $1,000 and sold for $2,500, that $1,500 difference is subject to state income taxes.
So why the special carve-out? “This is a very limited set of collectors we’re talking about here,” Scarpinato said. He said the tax impact on the state will be “de minimus.”
Still, Scarpinato had no estimates on the potential loss to the state’s general fund based on the current crop of coin collectors. Nor could he answer what might happen if other investors, seeing the state tax benefit, decide to move their money into gold and silver U.S. coins.
State Rep. Mark Finchem, R-Oro Valley, said the legislation is based on the fact that gold and silver coins created by the U.S. Mint are legal tender. He said that means someone who buys a gold coin is simply exchanging one form of legal currency — in this case, a federal reserve note — for another.
But the Mint sells coins based not on their face value but instead on the amount of precious metal. So on Monday, the Mint was selling a one-ounce gold coin with a face value of $50 for $1,560.
And if the price of gold goes up, the person who sells it will get more federal reserve notes in exchange.
No matter, said Finchem. He said if a coin bought for $1,000 in federal reserve notes a year ago sells for $1,500 such notes today, that isn’t a capital gain that should be subject to taxes. All it does, he said, is reflect that federal reserve notes are subject to inflation — and those who kept all their savings in such notes have lost money.
Former Gov. Jan Brewer, vetoed similar legislation in 2013, saying it would give businesses that sell the coins “
an unfair tax advantage.”