Does Tennessee charge sales tax when I buy or sell gold and silver coins?

Subject

Opinion No. 12-110, Sales Tax on Gold and Silver Coins, December 28, 2012

Plain-English summary

Senator Niceley asked three questions about whether Tennessee can collect sales tax on exchanges involving gold and silver coins. The AG's answers:

Question 1: Can Tennessee collect sales tax on gold and silver coin exchanges?

Yes, when the exchange is based on the coins' intrinsic value as precious metals or as collectibles, rather than their face value as legal tender. The defining case is State v. Sanders (Tenn. 1996), where the Tennessee Supreme Court held that gold and silver bullion and coins are "tangible personal property" subject to sales tax when exchanged based on intrinsic precious-metal value rather than legal-tender value. Tenn. Code Ann. §§ 67-6-101 to -907 (the Retailers' Sales Tax Act) impose tax on "sales" of "tangible personal property." The statute defines "sale" broadly (§ 67-6-102(80)(A)) and "tangible personal property" as anything that can be perceived by the senses (§ 67-6-102(91)(A)).

The key distinction in Sanders: the trade confirmations the defendant relied on showed the coins were priced by weight, not by legal-tender denomination. That meant the transactions were exchanges for precious metals at intrinsic value, not exchanges of money for money. The Court found this didn't interfere with Congress's constitutional power to "coin money" (U.S. Const. art. I, § 10).

The same applies to scarcity-value or collectibility-driven prices. A 1909-S VDB Lincoln cent worth thousands sold as a collectible is also tangible personal property; the sale is taxable. Tennessee follows the same approach as Alabama (Eagerton), Kentucky (Saylor), Michigan (Michigan National Bank), Minnesota (Northwest Territories), Missouri (Scotchman's), Ohio (Losana), and Utah (Thorne and Wilson). The AG also referenced Tenn. Att'y Gen. Op. 81-476.

Practical examples from the opinion:

• U.S. quarter exchanged for two dimes and a nickel: NOT taxable (legal-tender exchange at face value).
• U.S. quarter exchanged for $100 because of its precious-metal content (e.g., a pre-1965 silver quarter): TAXABLE (intrinsic-value sale).
• $50 gold coin exchanged for $300: TAXABLE (sale at intrinsic value, not face value).

Question 2: Does a tax on U.S. legal tender violate the Commerce Clause?

Yes, in principle, BUT Tennessee doesn't tax legal tender as legal tender. The Constitution grants Congress the power to coin money and regulate its value (Norman v. Baltimore & Ohio R. Co.). The states cannot declare what shall be money or regulate its value. So a state tax on the use of legal tender at its legal-tender value would impermissibly regulate that value.

But Tennessee's tax doesn't do that. When a $50 gold coin is exchanged for $50 in change, Tennessee doesn't tax it. When a $50 gold coin is exchanged for $300 because of its gold content, Tennessee taxes it as a sale of tangible personal property (the gold), not as a tax on legal tender. The gold coin in that scenario isn't being used as $50 of legal tender; it's being sold as gold.

Question 3: Does a tax on foreign coins violate GATT?

No. The General Agreement on Tariffs and Trade prohibits discriminatory treatment of imports between signatory nations. The Alabama Court of Civil Appeals in Eagerton held that imposing sales tax on foreign coins doesn't violate GATT because the tax applies only AFTER the foreign coins have entered domestic commerce and lost their character as imports. Tennessee follows the same approach.

Additionally, Tennessee doesn't tax foreign coins exchanged at their foreign legal-tender value (e.g., exchanging South African Krugerrand for U.S. dollars at the exchange rate). But when foreign coins are exchanged based on precious-metal or collectibility value (the Krugerrand sold based on its gold content), the transaction is a taxable sale of tangible personal property (Sanders dealt with exactly this).

Currency note

This opinion was issued in 2012. Subsequent statutory amendments, court decisions, or later AG opinions may have changed the analysis. Treat this page as historical context, not current legal advice. Verify current law before relying on any specific rule, deadline, or remedy mentioned here.

Background and statutory framework

Tennessee's sales tax basics

Tenn. Code Ann. § 67-6-202(a): "For the exercise of the privilege of engaging in the business of selling tangible personal property at retail in this state, a tax is levied on the sales price of each item or article of tangible personal property when sold at retail in this state."

§ 67-6-102(80)(A): "Sale" means any transfer of title or possession or both, exchange, barter, lease or rental, conditional or otherwise, in any manner or by any means whatsoever of tangible personal property for a consideration.

§ 67-6-102(91)(A): "Tangible personal property" means personal property that can be seen, weighed, measured, felt, or touched, or that is in any other manner perceptible to the senses.

State v. Sanders (Tenn. 1996) is the controlling Tennessee precedent

Sanders directly addressed whether the exchange of gold and silver coins for dollars constitutes a sale of tangible personal property subject to Tennessee's sales tax. The Tennessee Supreme Court said yes when the transaction is based on intrinsic precious-metal value. The Court found that "the transactions on which the defendant failed to collect and remit sales tax were based on the intrinsic value of the precious metals rather than their representative value as a medium of exchange." 923 S.W.2d at 543. The trade confirmations showed pricing by weight, not by legal-tender denomination. The Court held that this conclusion "does not interfere with the constitutional right of the federal government to 'coin money.'" (citing U.S. Const. art. I, § 10).

Decisions in other jurisdictions consistently agree

• Alabama: Eagerton (Ala. Civ. App. 1984)
• Kentucky: Saylor (Ky. Ct. App. 1987)
• Michigan: Michigan National Bank (Mich. Ct. App. 1983)
• Minnesota: Northwest Territories Gold & Silver Exchange (Minn. 1985)
• Missouri: Scotchman's Coin Shop (Mo. 1983)
• Ohio: Losana Corp. (Ohio 1968)
• Utah: Thorne and Wilson (Utah 1984)

Federal coinage authority

Norman v. Baltimore & Ohio R. Co. (1935) describes Congress's "broad and comprehensive national authority over the subjects of revenue, finance, and currency." Congress alone has the power to declare what shall be money or regulate its value. States are categorically barred from "declar[ing] what shall be money, or regulat[ing] its value."

31 U.S.C. § 5103 designates U.S. coins and currency as legal tender for all debts, public charges, taxes, and dues. It also explicitly says "Foreign gold or silver coins are not legal tender for debts." 31 U.S.C. § 5112(a) authorizes the Treasury Secretary to mint specified coins, including the $50 gold American Eagle, the $25 quarter-ounce gold coin, $10 tenth-ounce gold coin, $5 fortieth-ounce gold coin, the $50 one-ounce gold coin, and the $25 one-ounce palladium coin. § 5112(e), (f), (i) authorize sale of bullion coins to the public at market value plus minting/marketing/distribution costs. § 5112(h) confirms these coins are legal tender.

Why the legal-tender-vs.-intrinsic-value distinction holds

When a person uses a $50 gold coin to settle a $50 debt, the coin is functioning as $50 of legal tender; no sales tax. When a person buys the same coin for $1,800 because of its gold content, the coin is functioning as a 1-ounce piece of gold being sold for its market price; sales tax applies to the $1,800 sale.

The state isn't regulating the legal-tender value of the coin (still $50 when used as legal tender). The state is just taxing transactions where the coin is sold as tangible personal property at a price higher than its legal-tender denomination, based on metal content or collectibility.

GATT analysis

Eagerton (Ala. Civ. App. 1984) is the leading case. Sales tax on foreign coins after they've entered domestic commerce isn't a tariff on imports; it's an internal sales tax. GATT prohibits discrimination between domestic and foreign trade, but applies only to imports retaining their import character. Once foreign coins are circulating in domestic markets and being bought and sold as tangible personal property, they're subject to the same sales tax as any other tangible personal property.

Krugerrand example

The opinion specifically discusses Krugerrands. They are not legal tender in the United States (31 U.S.C. § 5103). When a Krugerrand is bought and sold in Tennessee based on the weight of its gold content, the transaction is a taxable sale of tangible personal property. State v. Sanders involved exactly this.

Common questions

I want to buy gold American Eagles as an investment. Do I pay Tennessee sales tax?
Under this opinion's reasoning, yes, if the price is based on the gold's market value (which is normal for American Eagles, since they trade at a premium over their $50 face value). Tennessee may have subsequent legislation creating an exemption for investment coins or bullion; verify current law before transacting.

I'm a coin dealer. Do I have to collect sales tax on every transaction?
Under this opinion, on transactions priced based on precious-metal content or collectibility value. Not on face-value legal-tender exchanges. Practical experience: most coin-dealer transactions ARE priced based on something other than face value (otherwise why bother buying or selling?), so the default expectation should be that sales tax applies unless an exemption removes it.

What about gold or silver bullion (bars, not coins)?
Sanders covered "bullion and coins." Bullion is plainly tangible personal property; its sale is taxable under § 67-6-202(a) on the same theory.

If I melt a U.S. silver dollar for its silver content, does that affect the tax analysis?
The opinion focuses on the transaction (buying or selling), not on what the buyer does afterwards. If you bought the dollar for $30 because of its silver content, the seller should have collected sales tax on the $30 sale.

Has Tennessee passed any precious-metals sales tax exemption since 2012?
The opinion doesn't address possible later legislation. Several states have enacted bullion sales tax exemptions in the years since 2012. Verify current Tennessee law before relying on the opinion's "taxable" conclusion.

Citations

Statutes and constitutional provisions:

• Tenn. Code Ann. §§ 67-6-101 to -907 (Retailers' Sales Tax Act)
• Tenn. Code Ann. § 67-6-102(80)(A) (definition of "sale")
• Tenn. Code Ann. § 67-6-102(91)(A) (definition of "tangible personal property")
• Tenn. Code Ann. § 67-6-202(a) (tax on retail sales)
• 31 U.S.C. § 5103 (U.S. legal tender; foreign coin disqualification)
• 31 U.S.C. § 5112(a), (e), (f), (h), (i) (coinage authority)
• U.S. Const. art. I, § 10 (state coinage restriction)

Cases and prior opinions:

• State v. Sanders, 923 S.W.2d 540 (Tenn. 1996)
• Norman v. Baltimore & Ohio R. Co., 294 U.S. 240 (1935)
• Association of Alabama Professional Numismatists v. Eagerton, 455 So.2d 867 (Ala. Civ. App. 1984)
• Revenue Cabinet v. Saylor, 738 S.W.2d 426 (Ky. Ct. App. 1987)
• Michigan National Bank v. Department of Treasury, 339 N.W.2d 515 (Mich. Ct. App. 1983)
• Northwest Territories Gold & Silver Exchange v. Commissioner of Revenue, 377 N.W.2d 448 (Minn. 1985)
• Scotchman's Coin Shop v. Administrative Hearing Commission, 654 S.W.2d 873 (Mo. 1983)
• Losana Corp. v. Porterfield, 236 N.E.2d 535 (Ohio 1968)
• Thorne and Wilson v. Utah State Tax Commission, 681 P.2d 1237 (Utah 1984)
• Tenn. Att'y Gen. Op. 81-476 (Aug. 26, 1981)

Source

• Landing page: https://www.tn.gov/attorneygeneral/opinions.html
• Original PDF: https://www.tn.gov/content/dam/tn/attorneygeneral/documents/ops/2012/op12-110.pdf

Original opinion text

S T A T E O F T E N N E S S E E
OFFICE OF THE
ATTORNEY GENERAL
PO BOX 20207
NASHVILLE, TENNESSEE 37202

December 28, 2012

Opinion No. 12-110

Sales Tax on Gold and Silver Coins

QUESTIONS

1. Can the State of Tennessee legally collect sales tax on exchanges of gold and silver coins?

2. Does a tax on United States legal tender violate the Commerce Clause of the United States Constitution?

3. Does a tax on foreign legal tender gold, silver, platinum, or palladium coins violate the General Agreement on Tariffs and Trade?

OPINIONS

1. The State of Tennessee may legally collect sales tax on exchanges of gold and silver coins when gold and silver coins are exchanged based on their intrinsic value as precious metals or as collectible items, rather than their value as legal tender as set by Congress. Such transactions are considered taxable sales of tangible personal property under the Retailers' Sales Tax Act, codified at Tenn. Code Ann. §§ 67-6-101 to -907.

2. A tax on United States legal tender as legal tender would impinge on Congress's power to establish a uniform legal tender, which is derived primarily from Congress's express power to coin money and regulate the value thereof. Tennessee law does not impose such a tax.

3. The General Agreement on Tariffs and Trade does not prohibit Tennessee from collecting sales tax on exchanges of foreign coins when foreign coins are exchanged based on their intrinsic value as precious metals or as collectible items, rather than their value as legal tender as set by the issuing nation.

ANALYSIS

1. The law of Tennessee specifically provides that "[f]or the exercise of the privilege of engaging in the business of selling tangible personal property at retail in this state, a tax is levied on the sales price of each item or article of tangible personal property when sold at retail in this state." Tenn. Code Ann. § 67-6-202(a). "Sale" is defined as "any transfer of title or possession, or both, exchange, barter, lease or rental, conditional or otherwise, in any manner or by any means whatsoever of tangible personal property for a consideration." Tenn. Code Ann. § 67-6-102(80)(A). "Tangible personal property" is defined as "personal property that can be seen, weighed, measured, felt, or touched, or that is in any other manner perceptible to the senses." Tenn. Code Ann. § 67-6-102(91)(A).

In State v. Sanders, 923 S.W.2d 540 (Tenn. 1996), the Tennessee Supreme Court addressed the issue of "whether the exchange of gold and silver coins for dollars constitutes the sale of tangible personal property which is subject to sales tax imposed by Tenn. Code Ann. § 67-6-101 et seq." 923 S.W.2d at 541. The defendant insisted that gold and silver bullion and coins were money and that sales tax could not be imposed on the defendant's exchanges of money for money. Id. at 542. The Supreme Court rejected the defendant's argument and held that the gold and silver bullion and coins were tangible personal property subject to sales tax. Id. at 543. The Court found "that the transactions on which the defendant failed to collect and remit sales tax were based on the intrinsic value of the precious metals rather than their representative value as a medium of exchange." Id. According to the Court, the most compelling evidence was trade confirmations provided by the defendant showing "that the value of each coin was based on its weight, not its value as established by the issuing government." Id. The Court determined that its conclusion that the sale of coins is subject to taxation by the State "does not interfere with the constitutional right of the federal government to 'coin money.'" Id. (citing U.S. Const. art. I, § 10).

The Supreme Court's decision in Sanders is consistent with decisions from other jurisdictions holding that gold and silver bullion and coins are tangible personal property subject to sales tax. See Association of Alabama Professional Numismatists, Inc. v. Eagerton, 455 So.2d 867 (Ala. Civ. App. 1984); Revenue Cabinet, Commonwealth of Kentucky v. Saylor, 738 S.W.2d 426 (Ky. Ct. App. 1987); Michigan National Bank v. Department of Treasury, 339 N.W.2d 515 (Mich. Ct. App. 1983); Northwest Territories Gold & Silver Exchange, Inc. v. Commissioner of Revenue, 377 N.W.2d 448 (Minn. 1985); Scotchman's Coin Shop, Inc. v. Administrative Hearing Commission, 654 S.W.2d 873 (Mo. 1983); Losana Corp. v. Porterfield, 236 N.E.2d 535 (Ohio 1968); Thorne and Wilson, Inc. v. Utah State Tax Commission, 681 P.2d 1237 (Utah 1984). This Office has likewise opined that the sale of gold and silver bullion and coins is subject to sales tax in Tennessee. See Op. Tenn. Att'y Gen. 81-476 (Aug. 26, 1981).

Based on the foregoing authorities, when gold and silver coins are exchanged for legal tender based on the representative value of the coins as a medium of exchange established by the issuing government, the transaction is not a taxable sale of tangible personal property. When gold and silver coins are exchanged for legal tender based on the intrinsic value of the coins as precious metals, however, the transaction is a taxable sale of tangible personal property. For example, the exchange of a U.S. quarter for two dimes and a nickel would not be a taxable sale of tangible personal property; however, the exchange of a U.S. quarter for a $100 bill because the quarter contains precious metals having an intrinsic value of $100 would be a taxable sale of tangible personal property.

Certain coins will also have an intrinsic value that exceeds their designated value as legal tender due to factors other than the coins' precious metal content, such as coins that are valued for their scarcity or appearance (e.g., minting defect or commemorative design). If such coins are exchanged for more than their designated value as legal tender, the transaction will likewise be considered a taxable sale of tangible personal property. See Michigan National Bank, 339 N.W.2d at 517; Losana Corp., 236 N.E.2d at 537.

2. The Constitution grants to Congress the power to establish a uniform legal tender and to prohibit all other forms of currency exchange. In Norman v. Baltimore & Ohio R. Co., 294 U.S. 240 (1935), the United States Supreme Court explained Congress's broad power over the national currency as follows:

The broad and comprehensive national authority over the subjects of revenue, finance, and currency is derived from the aggregate of the powers granted to the Congress, embracing the powers to lay and collect taxes, to borrow money, to regulate commerce with foreign nations and among the several states, to coin money, regulate the value thereof, and of foreign coin, and fix the standards of weights and measures, and the added express power 'to make all laws which shall be necessary and proper for carrying into execution' the other enumerated powers. . . .

The Constitution 'was designed to provide the same currency, having a uniform legal value in all the States.' It was for that reason that the power to regulate the value of money was conferred upon the federal government, while the same power, as well as the power to emit bills of credit, was withdrawn from the states. The states cannot declare what shall be money, or regulate its value. Whatever power there is over the currency is vested in the Congress.

294 U.S. at 303 (citations omitted).

Pursuant to its authority to establish a uniform legal tender, Congress has decreed that "United States coins and currency (including Federal reserve notes and circulating notes of Federal reserve banks and national banks) are legal tender for all debts, public charges, taxes, and dues. Foreign gold or silver coins are not legal tender for debts." 31 U.S.C. § 5103. The Secretary of the Treasury is authorized to mint and issue various coins including dollar, half dollar, quarter, dime, nickel, penny, and a series of gold and palladium investment coins. 31 U.S.C. § 5112(a). The Secretary is also authorized to mint and sell silver and gold coins to the public at a price equal to the market value of the bullion at the time of sale, plus the cost of minting, marketing, and distributing such coins. 31 U.S.C. § 5112(e), (f), and (i).

The coins minted and issued by the Secretary of the Treasury are legal tender of the United States. See 31 U.S.C. §§ 5103 and 5112(h). Only Congress has the power to establish the value of the legal tender of the United States. See Norman, 294 U.S. at 303. The value of gold and silver coins as legal tender is the value denominated by Congress, not the market value of the coins based on their gold or silver content. The State cannot tax exchanges of gold and silver coins for other legal tender that are based on the value of the coins set by Congress, because doing so would impermissibly regulate the value of United States legal tender. For example, the State could not apply the sales tax to a transaction in which two $50 gold coins are exchanged for a $100 bill, because doing so would reduce the value of the gold coins as legal tender set by Congress.

Tennessee does not tax exchanges of gold and silver coins for other legal tender that are based on the value of the coins set by Congress. As the Tennessee Supreme Court explained in Sanders, exchanges of gold and silver coins for other legal tender that are based on the coins' value as legal tender set by Congress are not taxable sales of tangible personal property under the Retailers' Sales Tax Act. 923 S.W.2d at 543. When gold and silver coins are exchanged for other legal tender based on the intrinsic value of their gold or silver content, however, the transaction is a taxable sale of tangible personal property. This is not a tax on United States legal tender. If a $50 gold coin is exchanged for $300, the gold coin is not being used as legal tender; instead, it is being sold as an item of tangible personal property based on its value as a precious metal, rather than its legal tender value of $50.

3. The General Agreement on Tariffs and Trade ("GATT") is an agreement among several nations consisting of "reciprocal and mutually advantageous arrangements directed to the substantial reduction of tariffs and other barriers to trade and to the elimination of discriminatory treatment in international commerce." Preamble, General Agreement on Tariffs and Trade. GATT "prohibits discriminatory treatment of exports and imports between the signatory nations." Association of Alabama Professional Numismatists, Inc. v. Eagerton, 455 So.2d 867, 870 (Ala. Civ. App. 1984). In Association of Alabama Professional Numismatists, the Alabama Court of Civil Appeals held that imposing sales tax on sales of foreign coins did not result in discriminatory treatment in violation of GATT. The Court explained that just as the states cannot initially tax gold coins minted and sold by the United States, so too the states cannot tax foreign coins so long as they retain their character as imported goods. Subsequent transactions of both U.S. gold coins and foreign gold coins are nevertheless subject to sales tax. The Court held that application of Alabama's sales tax to sales of foreign coins did not violate GATT because sales of foreign coins were taxed once the coins had entered domestic commerce and were no longer imports subject to GATT. Id. Tennessee's sales tax likewise does not apply to the importation of foreign coins; rather, it applies to the sale of foreign coins after they have lost their character as imports.

Furthermore, Tennessee does not impose a tax on transactions by which foreign coins are exchanged for their equivalent in U.S. dollars. Such transactions are not taxable sales of tangible personal property, provided that the value of the foreign coins is based on their value as legal tender as established by the issuing government. When foreign coins are exchanged for U.S. dollars based on the coins' value as precious metals or collectible items, however, the transaction is a taxable sale of tangible personal property. In Sanders, the Tennessee Supreme Court found that the defendant's exchanges of Krugerrands for dollars were not valued according to an exchange rate between dollars and Krugerrands, but instead were valued based on the weight of the Krugerrands, i.e., their value as precious metals, not their value as legal tender set by the issuing government. 923 S.W.2d at 543. Accordingly, the transactions were taxable sales of tangible personal property.

ROBERT E. COOPER, JR.
Attorney General and Reporter

WILLIAM E. YOUNG
Solicitor General

R. MITCHELL PORCELLO
Assistant Attorney General

Requested by:
The Honorable Frank Niceley
State Senator
309 War Memorial Building
Nashville, Tennessee 37243-0117