It sounds so simple. Unemployment is up, state revenues are down. The Legislature is looking for new revenue to avoid another round of devastating cuts. Why not close so-called tax loopholes? And why not start by extending the sales tax and business and occupation (B&O) tax on to the sale of gold and other precious metals?
As is so often the case, the reality is more complicated than the perception.
Re-imposing the sales and B&O taxes on the sale of precious metals will not only devastate small, local bullion and coin dealers, and it will also likely destroy industrial refining and recycling businesses, such as the one my family has built over the past 35 years in Mount Vernon.
In 1984, the state Department of Revenue looked at the effect our tax system had on the precious metals industry, and determined that the vast majority of purchases were being made out of state, to avoid our taxes. The next year, the Legislature exempted the sale of precious metals from the sales and B&O tax. Lawmakers took this action to create jobs in Washington — and it worked. Prior to 1985 there was virtually no coin and bullion industry in Washington. Today, there are more than 100 stores employing more than 300 people.
Now the Legislature is considering proposals to go backwards and re-impose these taxes. The effect on coin and bullion dealers would be obvious, and devastating. The vast majority of states do not collect sales tax on these investments, and our B&O tax, which is a tax on gross receipts, not net profits, is especially onerous on businesses with limited ability to “mark up” the price of their product. Without these exemptions, investors will once again buy out of state, stores will close, and the state will lose more jobs and more revenue.
Likewise, the loss of these exemptions would likely cause my business to lay off our 50 employees and close our doors.
My family and I operate Hallmark Refining. Hallmark is a recycler/refiner of precious metals serving the photo finishing and electronics industry. We manufacture silver recovery equipment, and refine, recycle and sell the silver residue from photo finishing and electronics. We work on narrow profit margins in order to compete for large national accounts, and today we are the primary vendor for two of north America’s largest retailers.
We will not be able to survive a sales tax or B&O tax on precious metals because we will not be able to pass on the costs to our largest customers, and the new taxes would wipe out our already small profit margin. If we try to raise prices our customers will look at their bottom line and go to another refiner in the U.S. that can offer the same services at a lower price. The same will be true for the other recyclers and refiners in our state.
And like the investment coin and bullion dealers, those of us in the recycling and refining industry do pay our fair share. Hallmark pays the B&O tax on recycling/refining services and manufactured equipment; coin and bullion dealers pay the B&O on their commissions, just as stock brokers do.
Adding insult to injury, representatives of national trade associations representing coin and precious metal dealers have informed Seattle business leaders that repeal of these tax exemptions will effectively eliminate Seattle, Spokane, Tacoma and Everett as potential sites for national conventions and coin shows. A number of the larger shows have a documented estimated economic impact ranging from $9 million to $15 million per event.
Perhaps there are tax loopholes that should be closed, but re-imposing taxes on precious metals will make things worse for the state, not better. These exemptions were enacted to create jobs, and they were successful. The last thing we need right now is more people in the unemployment line, and less revenue flowing to our state government.
John Senff is vice president of Hallmark Refining Corp. in Mount Vernon.
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