The moment that Arizona precious metals investors have been hoping for finally came this week, as Governor Doug Ducey signed Arizona House Bill 2014 into law. The bill eliminates state capital gains taxes on income “derived from the exchange of one kind of legal tender for another kind of legal tender,” which specifically includes specie, or coins with precious metal content. In other words, gold and silver coins will be treated, at least for Arizona state tax purposes, purely as money and no longer as commodity assets. 1
Arizona State Representative Mark Finchem introduced HB2014, and it passed the Arizona Senate Finance Committee last March and the Arizona Senate on May 10. The governor’s signature was the last hurdle required for full passage of the bill. The new law takes effect on August 9, 2017.
Impact of New Law
The new law has two main components:
1. Identify Gold and Silver Coins as Legal Tender
Once this bill goes into effect, gold and silver coins may be used in the state of Arizona in place of paper money. For many, this move is a pushback on the Federal Reserve’s system of currency controls and questionable monetary policy. Ron Paul, former U.S. congressman from Texas, has voiced his support for the bill on these grounds alone, stating “If you want to have liberty and limit the size of government, you have to have honest money.”
2. Eliminate Capital Gains Taxes
This aspect of the bill is likely to have an impact on Arizona’s demand for gold and silver coins, since under the new law, gains made on increases in the value of gold and silver coins would not be taxable, whereas losses made on falls in the prices of the coins would be tax deductible. Precious metals gold trading in Arizona is likely to get a significant boost in the upcoming months.
A Return to the Constitution?
HB2014’s supporters have noted that the new law is actually a return to a constitutional principle. Article 1, Section 10 of the U.S. Constitution states that “no state shall…make anything but gold and silver coin a tender in payment of debts…” 2 Constitutional tender expert Professor William Green has stated that over time, the use of specie that maintains its value while paper money is devalued would eventually lead to the nullification of the Federal Reserve and end the federal government’s monopoly on money. 3
A similar bill, SB 2097, is under consideration in Texas, where a bill to establish a state-run bullion depository was recently passed.
Whatever the actual longer-term implications for HB2014, one thing is for certain: Arizona precious metals investors can look forward to lower taxes in 2017!