Kentucky Governor plans to collect sales tax on Gold and Silver despite new law

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. “Tangible goods are the primary basis of the sales tax.”

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 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 National Coin and Bullion Association issued a statement highlighting the dilemma for gold and silver sellers and buyers 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."