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Sound Money Defense League's Jp Cortez joins KitcoNews to Discuss State Taxes on Gold and Silver

Jp Cortez, policy director for the Sound Money Defense League, joins David Lin on KitcoNews to discuss taxes on sound money and active state legislative battles

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TRANSCRIPT: 

David Lin:

Should we return to a standard in which gold and silver are used as money all across the country, should we eliminate taxes on the transaction of gold and silver bars and coins? Well, this is the topic of our conversation with Jp Cortez. He is the Policy Director of the Sound Money Defense League. Jp, welcome back to the show. Welcome back to Kitco.

Jp Cortez:

Hey, David, thank you for having me on again. It's great to be here.

David Lin:

Great to see you again. Last year I had you on about eight months ago. We talked about the elimination of taxes in certain states. That's something that you and your organization have been fighting for, the elimination of taxes on gold and silver transactions. We're going to talk about that and a lot of other subjects today; but before that, give us an introduction of your organization, the Sound Policy, or sorry, the Sound Money Defense League, rather. What is the mission of this organization?

Jp Cortez:

Sure. The Sound Money Defense League is a public policy project, in collaboration with Money Metals Exchange, to remonetize gold and silver. The idea is largely that there are rules and restrictions taxes, disincentives that are surrounding the use, sale, and purchase of gold and silver. And so, people, many times would like to invest in precious metals, in these assets that have held their value since time immemorial, but they are unable to, many times because of the taxes in the state against it, many times because of just the rules and the regulations. It's a very onerous process.

David Lin:

Right.

Jp Cortez:

And in many cases, states can't do it either.

David Lin:

Right.

Jp Cortez:

There, in many cases, there are permissible investment rules. There are laws against what a state is and isn't allowed to invest taxpayer funds in. And so, many states can't invest in gold and silver if they wanted to either.

David Lin:

So what's the situation today? We'll talk about the states holding gold and silver in just a minute. But I want to talk about the individual retail investors who want to buy or transact with gold and silver. So if I were to... I don't know. Let's say live in California. Okay? And I want to go buy some gold right now. What's the process for me? Do I have to pay tax on that transaction?

Jp Cortez:

Not if you buy; if you're looking for gold, if you're going to buy it in a one ounce increment over $1,500, no. There will be no tax on the purchase in California. If you were to go to California and buy under that $1,500 threshold, you would be taxed. There are six states here in the United States that charge sales tax based on a threshold; so you have to qualify for the exemption. Your transaction has to be above either $500, $1,000, or $1,500. And so, those six states: New York, California, Virginia, Massachusetts, Connecticut, and Florida, those states are, I'm honestly not even sure what the point of this threshold policy is, because ultimately it only hurts the small time investors. It hurts the people that are making small investments, silver coins at a time, to preserve the purchasing power of their money.

David Lin:

What level of tax are we talking about?

Jp Cortez:

Sales tax, you're talking about, in California, in Tennessee, for example, you're talking about one of the highest sales taxes in the country: 7, 8, 9, 10%. And so, it makes an investment, it makes it incredibly hard to collect if you're charged sales tax.

David Lin:

So, that's before... Okay. We're not even talking about capital gains taxes, right?

Jp Cortez:

Exactly.

David Lin:

Because let's say I buy some gold, and a year later it goes up; I sell it for a profit, I have to pay a capital gains on that as well. Right? Is that... Well, that's federally mandated or no? Or is that dependent on the state?

Jp Cortez:

Exactly. So, it is federally mandated. And so, this sort of describes or illustrates how criminal, frankly, this is. In nine states across the United States, if you want to purchase precious metals, if you want to buy gold and silver, you're going to get hit with a sales tax, call it 7, 8, 9, 10%. Then, a couple of years later, whenever you go back to sell the asset, you're going to be... Federal, there's a federal capital gains.

David Lin:

Right.

Jp Cortez:

And so, you're charged there the second time. And then, in most states, in all but maybe two or three states, you're charged again on the state level. So you're charged a third time on capital gains. So as in investment, it becomes completely untenable. It's impossible to store your wealth in this way, because of all the taxes that burden the investors.

David Lin:

All right. Well, Jp, I'll ask you to put yourself in the shoes of the legislators now, because I'm going to go off to my exchange, and buy some Bitcoin or I'm going to go off to my exchange, and/or my broker, and buy some stocks; in neither of those scenarios do I have to pay a tax on transactions. Yes, I have to pay capital gains tax, should I profit at the end of the year; but I don't have to pay a tax every time I buy a stock. So why do I have to pay tax every time I buy, let's say a Silver Eagle coin or a Silver Buffalo?

Jp Cortez:

If I had to put myself in the shoes of the legislators, the lawmakers, I would say that the reason for that is because the government, the stance that the federal government and the IRS have taken towards gold and silver has been one to classify them as collectibles. In many cases, they aren't seen or deemed as investments. They're categorically put in the same group as beanie babies and baseball cards. And so, there is special discriminatory treatment towards investors who want to store their money, their savings, in precious metals.

David Lin:

Well, Jp, I've heard that argument before. "Gold is just a pet rock, it's just a collectible." What's the difference between gold and a beanie baby? Should they even be considered in the same category? What do you think?

Jp Cortez:

Sure. Yeah. I don't think that they should be considered in same category at all. They're fundamentally different goods. What gives precious metal its value is the purity of the metal, the fact that it's retained its value over the long term.

David Lin:

Yeah.

Jp Cortez:

Beanie babies, these sort of collectable goods, they have value for sure. But as far as an investment, they have fundamental value for different reasons.

David Lin:

I'm just going to play devil's advocate here. And look, I don't know the market for beanie babies, but I know that goods overall over the last two years have risen in price due to inflation.

Jp Cortez:

So true.

David Lin:

So I suppose if I were to buy beanie baby today, that thing would cost more today than it did two, three years ago. So in a sense, beanie babies are and inflation hedge, right?

Jp Cortez:

Yeah. I guess if you wanted to hold your beanie baby as an inflation hedge, you definitely could. You're sort of hoping that somewhere down the line-

David Lin:

I'm being facetious, of course. I can't sell my beanie baby to you. No one is going to buy my beanie baby. I'm just...

Jp Cortez:

That's the hope.

David Lin:

But the point is, yeah, things go up in value. Okay. So the government thinks it's a collectible item. Now, the Sound Money Defense League obviously has different thoughts for what gold is. In your words, how would you describe gold? What is it?

Jp Cortez:

I think gold is sound money. And I think sound money is the opposite of what we have in the United States today. What we have in the United States today is political money. It's money that can be manipulated. It's money that can be recklessly abused. What sound money does, is it shackles a government that would otherwise act recklessly or irresponsibly and financially irresponsibly. And so, that is what sound money is. That's the benefit that sound money serves. It shackles a government from expanding and growing too big.

David Lin:

Okay. So define sound money. If I were to present to you a $20 US American bill, would you say that is sound money?

Jp Cortez:

I would not. What you're describing, that US bill, is a Federal Reserve Note. It's a fiat paper money, backed by and nothing other than the full faith and credit of the United States. This is why the legal tender designation is important, and an interesting area. Fiat Federal Reserve Notes are just pieces of paper that have been declared legal tender.

David Lin:

Right.

Jp Cortez:

But real money doesn't need to be declared legal tender. It is money.

David Lin:

So tell me about some of the work that you and your organization have done so far, to help eliminate taxes across the US on the sale and transactions of gold and silver coins.

Jp Cortez:

Yeah. So last year was a great year for Sound Money. The last couple years, several years, have been really promising from a Sound Money front. Last year in Arkansas and Ohio, both of those states decided to move forward with eliminating that tax on precious metals transactions. This year, in Kentucky, Mississippi, Hawaii, New Jersey, Tennessee, these are states that are all considering removing the sales tax on purchases as well.

Jp Cortez:

There are defensive battles, Alabama and Virginia are fighting sunset battles right now, hoping to extend their current existing exemption. And Oklahoma and West Virginia are also so wanting to eliminate capital gains. So when you sell your assets in those states, you wouldn't be charged as state income tax if these measures pass.

David Lin:

All right. So I'm just going to role play. I'm a hardball lawmaker now, and I'm having a meeting with you, and I'm saying, "Jp, thanks for coming to my office. Let's talk about this. I think gold should be taxed. It's a collectible item like you said. If people are buying luxury goods: watches, cars, whatever the case may be, they have to pay a sales tax on that. Right? And if I buy a car and I trade it in later for a lesser or even perhaps higher value, it's still an item that needs to be taxed. The government needs to be able to tax you on transactions. So why should you exempt gold silver from this law that we have that applies to basically everything else?"

Jp Cortez:

There are a lot of reasons why gold and silver should not be taxed, the purchases of gold and silver should not be taxed. But an easy one here would be simply resale. When you buy a car, you are using that car, you are consuming the car. You are getting use. You are using the car; it's not being held for resale. But in the case of stocks, bonds, ETFs, gold, silver, Bitcoin, these are goods that are being sold for resale. They're not consumable, final goods, so it's inappropriate to charge a sales tax on them.

David Lin:

What are the states right now with the highest levels of taxes on gold and silver sales?

Jp Cortez:

On gold and silver sales, Tennessee would be the number one. There are five states here that we are working in right now to end this tax. Of those five, Tennessee has the largest local and state sales tax; that's close to 10%.

David Lin:

Okay. And the lowest?

Jp Cortez:

The lowest would have to be somewhere towards the top of the Sound Money Index. Wyoming, Texas, South Dakota are real great on these issues. They've all eliminated the tax, and they have generally low levels of taxation, sales tax rates.

David Lin:

I presume you've worked in some of these areas already, so tell me if about the differences in attitudes and perceptions between, let's say a lawmaker in Texas, versus somebody in Tennessee. Why are they in disagreement over this issue?

Jp Cortez:

I think it's for several reasons. I think each state has its own individual financial needs. Some states that are currently collecting tax on the medals don't want to lose that revenue. But that is misguided, and it's short-sighted. Studies show that when states remove this sales tax on precious metals, the state ends up gaining more general revenue, because of conventions that come into the state, businesses that are opened, tourism dollars, and so on.

David Lin:

Okay. I'm going to read a paragraph from one of your recent articles here. It says here, "Other than Ohio, no state is currently known to hold any precious metals, even as inflation and financial turmoil accelerate globally." Explain this situation right now. First of all, I didn't know that states don't hold precious metals. I know that the Federal Reserve obviously has gold in their vaults as a reserve, the government as well, Fort Knox we know about; well, actually we don't know if there's any gold in Fort Knox.

Jp Cortez:

Yeah. We don't.

David Lin:

But that's a different conversation. We don't know. But okay. On a state level, why don't states hold precious metals? Why do you think that's happening, or not happening?

Jp Cortez:

You can have me back on next time to discuss Fort Knox and what's going on with the US gold holdings. But I think largely it's because of the rules that govern what states are allowed to do. In many states, there are a list of permissible investments that the State Treasurer is allowed to invest state taxpayer funds in. In the cases where there isn't, these are typically, these investment decisions are typically guided by so-called "prudent investor rules."

Jp Cortez:

But all of these states have investment policies that they put out every year. And towards the top of these policies, these principles, is safety of principle: value, storage, and safety of initial investment. And gold and silver are an obvious choice if those are your priorities, your primary objectives. And so, Oklahoma has recently introduced a bill to allow the State Treasurer to hold physical precious metals in state taxpayer funds, reserve funds, pension funds. New Hampshire is considering this as well.

David Lin:

I wonder if there's a political incentive to dissuade policymakers and state officials from holding gold and silver in the reserve; because if they do, presumably, they don't have to hold US treasuries. Right? Or the dollar; don't you see, maybe there's a conflict of interest here. Maybe the federal government sees this as a competition to the US dollar note. What do you think?

Jp Cortez:

Sure. Yeah. And I think that that's part of the reason that states should empower themselves to be able to protect their holdings with precious metals. The problem, the massive inflation that we're seeing today, is a problem wrought largely by the Federal Reserve, and on the federal level. But that doesn't mean that states have to be victim to it. They can mitigate some of the damage, and protect themselves by storing gold in their state, by investing funds in gold, and storing it in their state, out of the clutches of federal banking systems.

David Lin:

All right. So what is the ideal outcome that you would like to see one day, across the country, across all states, in terms of taxes, in terms of holdings, in terms of their attitude towards sound money? What do you want to see changed over the coming decades?

Jp Cortez:

I want to see sound money restored. I want a faith and a trust restored, implemented back into a value of money; because that has effects that ripple onward. When people are able to plan for the future, to invest for the future, to be able to go through the process of capital accumulation, building infrastructure; when these things take place, that is how poverty goes down. That is how standards of living rise. Sound money is a linchpin to a prosperous society. It is a necessary condition to a prosperous society; so that's what I would like to see.

David Lin:

Okay. And to achieve that goal, what are some of the steps you're taking now? What's the next step for you? What state are you visiting next? Who are you talking to? What are some of the legislations you're proposing?

Jp Cortez:

So we were working in Virginia yesterday. We had a hearing, we had two hearings and two bills that we're working on in Virginia, both of which eliminate the sales tax. And one of them eliminates the $1,000 threshold that we mentioned. The other bills that we're working on in Oklahoma, there are several; they've got a capital gains elimination there. They've got a state Bullion Depository that they're considering. They're considering state reserves as well. And the sales tax and the income tax are the biggest, those are our biggest issues, because those are the ones that affect the most people. And they're so obviously wrong, that they're simpler to fix.

David Lin:

All right, Jp, thanks for coming to the show today. I appreciate everything you're doing for Sound Money, and I appreciate your time. Before I let you go though, Jp, I want to ask you about Fort Knox. I don't want to wait until next time. So, throw me your craziest theory. Why hasn't Fort Knox been audited in many, many decades? I can't even remember the last time it was audited.

Jp Cortez:

It's been a long time, hasn't it? And even then, the last time it was a made-for-Hollywood sort of cursory audit. What's in there? Who knows. Maybe it is bars of gold. Maybe it's gold-plated chocolate. Who knows. It could be anything. I haven't seen it myself, so I can't confirm.

David Lin:

It's it's the Ark of the Covenant from Raiders of the Lost Ark; that's what they're hiding in there. Yeah.

Jp Cortez:

Oh, could be, could be.

David Lin:

It's collectible items for top men only. That's what's in Fort Knox.

Jp Cortez:

The Holy Grail, maybe?

David Lin:

Yeah. Holy Grail. Exactly. That's what I meant to say. Okay. Right. Thank you for coming on the show today, Jp. I appreciate it.

Jp Cortez:

Thanks, David.

David Lin:

And thank you for watching Kitco News. I'm David Lin.

 


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