By Michael Maharrey

Kentucky Governor Andy Beshear has decided he’s going to continue collecting sales tax on the sale of gold and silver despite a new law repealing the levy and an attorney general opinion calling his line-item veto of the provision unconstitutional.

Only five other states levy a sales tax on gold and silver.

Initially, Rep. Steven Doan and Rep. John Hodgson introduced a standalone bill to repeal the sales and use tax on gold and silver bullion. The provisions were later inserted into House Bill 8 (HB8), an omnibus revenue and tax bill.

The provisions in HB8 define “bullion” as “bars, ingots, or coins, which are made of gold, silver, platinum, palladium, or a combination of these metals, valued based on the content of the metal and not its form and used, or have been used, as a medium of exchange, security, or commodity by any state, the United States government, or a foreign nation.” Currency is defined as “a coin or currency made of gold, silver, platinum, palladium, or other metal or paper money that is or has been used as legal tender and is sold based on its value as a collectible item rather than the value as a medium of exchange.”

The House passed the bill 87-9 and the Senate approved the measure 34-0.

Gov. Beshear signed the bill but used a line-item veto to strike out the sales tax exemption for gold and silver.

“If you own gold, you can afford to pay sales tax,” Beshear wrote in his veto message.

UNCONSTITUTIONAL VETO?

House and Senate leadership deemed the veto unconstitutional. Under Sec. 88 of the Kentucky Constitution, “The Governor shall have the power to disapprove any part or parts of appropriation bills embracing distinct items, and the part or parts disapproved shall not become a law unless reconsidered and passed, as in case of a bill.”

In other words, the governor only has line-item veto power on appropriation (spending) bills. A line-item veto power does not exist for revenue bills.

Instead of simply overriding the veto, Republican leadership decided to make a political statement and try to give Beshear a black eye. It asked Attorney General Russell Coleman to issue an opinion on the constitutionality of the veto, and he agreed with the legislature’s assessment.

“Because the Governor’s veto power must be strictly construed, and because House Bill 8 is not an ‘appropriation bill,’ Section 88 does not empower the Governor to use his line-item veto on it. The Governor’s attempted line-item vetoes of House Bill 8 were nullities, as they exceeded his constitutional authority.”

Based on the AG’s (non-binding) opinion, the legislature directed the secretary of state to ignore the veto and enroll the statute. It went into effect on August 1.

BESHEAR BEGS TO DIFFER

Gov. Beshear rejected the AG’s opinion and has directed the Department of Revenue to collect the sales tax despite the law technically being on the books.

Beshear spokesman James Hatchett called the AG’s opinion “incorrect.”

“The very title of the bill at issue says it makes an appropriation. The governor properly exercised his constitutional authority to veto parts of the bill, and previous legal opinions have upheld similar line-item vetoes.”

Hatchett was referring to the first line of HB8: “AN ACT relating to fiscal matters, making an appropriation therefor, and declaring an emergency.” [Emphasis added]

The legal question boils down to whether or not a single appropriation in a revenue bill makes the bill an “appropriation bill.”

The National Coin and Bullion Association issued a statement highlighting the dilemma for gold and silver dealers and customers in Kentucky.

“Retailers are now faced with a challenging decision. Collecting sales tax could result in consumer backlash and potential class action lawsuits for overcharging, while not collecting it might lead to penalties or interest from the Kentucky Department of Revenue. Given the rapidly evolving situation, each dealer must decide whether to charge sales tax on transactions involving bullion and currency starting August 1.”

KNOCKING DOWN BARRIERS

Repealing sales taxes on precious metal bullion takes a step toward treating gold and silver as money instead of commodities. Taxes on precious metal bullion erect barriers to using gold and silver as money by raising transaction costs. As Sound Money Defense League policy director Jp Cortez testified during a committee hearing on a similar bill in Wyoming in 2018, charging taxes on money itself is beyond the pale.

“In effect, states that collect taxes on purchases of precious metals are inherently saying gold and silver are not money at all.”

Imagine if you asked a grocery clerk to break a $5 bill and he charged you a 35-cent tax. Silly, right? After all, you were only exchanging one form of money for another. But that’s essentially what Kentucky’s sales tax on gold and silver bullion did. By eliminating this tax on the exchange of gold and silver, New Jersey would treat specie as money instead of a commodity. This represents a small step toward reestablishing gold and silver as legal tender and breaking down the Fed’s monopoly on money.

“We ought not to tax money – and that’s a good idea. It makes no sense to tax money,” former U.S. Rep. Ron Paul said during testimony in support an Arizona bill that repealed capital gains taxes on gold and silver in that state. “Paper is not money, it’s fraud,” he continued.

The impact of enacting this legislation will go beyond mere tax policy. During an event after his Senate committee testimony, Paul pointed out that it’s really about the size and scope of government.

“If you’re for less government, you want sound money. The people who want big government, they don’t want sound money. They want to deceive you and commit fraud. They want to print the money. They want a monopoly. They want to get you conditioned, as our schools have conditioned us, to the point where deficits don’t matter.”

Practically speaking, eliminating taxes on the sale of gold and silver cracks open the door for people to begin using specie in regular business transactions. This marks an important small step toward currency competition.

The effect has been most dramatic in Utah where the legal tender law repealed all taxes on gold and silver bullion, opening the door for the development of a gold and silver market in the state. With some legal and tax hurdles cleared away by the state, the United Precious Metal Association (UPMA) in partnership with Alpine Gold Exchange set up the state’s first “gold bank.” The Utah Specie Legal Tender Act has also led to the creation of Goldbacks, a local, voluntary medium of exchange. Goldbacks are notes made from fractions of an ounce of physical gold. The company created a process that turns pure gold into a spendable physical form for small transactions.

BACKGROUND

The United States Constitution states in Article I, Section 10, “No State shall…make any Thing but gold and silver Coin a Tender in Payment of Debts.” Currently, all debts and taxes in Kentucky are either paid with Federal Reserve Notes (dollars) which were authorized as legal tender by Congress or with coins issued by the U.S. Treasury — very few of which have gold or silver in them.

The Federal Reserve destroys this constitutional monetary system by creating a monopoly based on its fiat currency. Without the backing of gold or silver, the central bank can easily create money out of thin air. This not only devalues your purchasing power over time; it also allows the federal government to borrow and spend far beyond what would be possible in a sound money system. Without the Fed, the U.S. government wouldn’t be able to maintain all of its unconstitutional wars and programs. The Federal Reserve is the engine that drives the most powerful government in the history of the world.

The passage of this tax repeal removes another of the tax barriers that hinder the use of gold and silver as money in Kentucky.

Repealing taxes on gold and silver also takes the first step in the process of abolishing the Federal Reserve system by attacking it from the bottom up – pulling the rug out from under it by working to make its functions irrelevant at the state and local levels, and setting the stage to undermine the Federal Reserve monopoly by introducing competition into the monetary system.

In a paper presented at the Mises Institute, Constitutional tender expert Professor William Greene said when people in multiple states actually start using gold and silver instead of Federal Reserve Notes, it would effectively nullify the Federal Reserve and end the federal government’s monopoly on money.

“Over time, as residents of the state use both Federal Reserve notes and silver and gold coins, the fact that the coins hold their value more than Federal Reserve notes do will lead to a “reverse Gresham’s Law” effect, where good money (gold and silver coins) will drive out bad money (Federal Reserve notes). As this happens, a cascade of events can begin to occur, including the flow of real wealth toward the state’s treasury, an influx of banking business from outside of the state – as people in other states carry out their desire to bank with sound money – and an eventual outcry against the use of Federal Reserve notes for any transactions.”

Once things get to that point, Federal Reserve notes would become largely unwanted and irrelevant for ordinary people. Nullifying the Fed on a state-by-state level is what will get us there.

This is a revised version of a post originally published by Money Metals Exchange.

Sourced from Tenth Amendment Center

Michael Maharrey [send him email] is the Communications Director for the Tenth Amendment Center. He is from the original home of the Principles of ’98 – Kentucky and currently resides in northern Florida. See his blog archive here and his article archive here.He is the author of the book, Our Last Hope: Rediscovering the Lost Path to Liberty., and Constitution Owner’s Manual. You can visit his personal website at MichaelMaharrey.com and like him on Facebook HERE

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