Expected New California Gold RushWhen Ian S....

Expected New California Gold Rush

When Ian S. Simpson was granted an exclusive license to mint California’s first gold piece last May, he envisioned a modern-day Gold Rush. So far, though, it’s been a bust.

The problem, Simpson said, is that the California gold medallions are subject to a 6% state sales tax, unlike foreign competitors: the South African Krugerrand, Canadian Maple Leaf and Mexican gold peso. That tax difference means that the medallions can cost as much as $60 more on a $1,000 transaction--a hefty amount in a lackluster gold market.

“People aren’t very patriotic when it comes to the pocketbook,” explained Simpson, president of Anaheim-based Rarities Mint Inc.

Foreign gold coins, which can be used as legal tender at their face value, are exempt from sales tax on purchases of $1,000 or more under current state law. Because federal law prohibits states from issuing their own currencies, the California Legislature approved gold pieces in the form of commemorative medallions. But that makes them subject to sales tax, no matter what the amount of purchase.

Assemblyman Dave Kelley (R-Hemet), sponsor of the bill authorizing the coins, recently introduced legislation to lift the sales tax from California gold medallions, which are decorated with the seal of California on one side and the state bear on the other, and carry individual serial numbers and certificates of assay. The bill is expected to go before the state Senate Fiscal Committee within the next month or two.

The coins come in denominations of one ounce, a half-ounce and a quarter-ounce, with the cost based on the market price for gold, currently about $290 an ounce.

Under its contract with the state, Rarities Mint pays royalties to the state at the rate of $4 per ounce, $2 for each half-ounce and $1 for each quarter-ounce sold.

In 1984, the state earned $5,000 in royalties after Rarities Mint test-marketed 5,000 ounces of California gold in medallion sets. So far this year, the royalties have totaled $3,132, according to the state Department of General Services.

Simpson points out that California won’t get much in royalties from the medallions if the sales tax continues.

“The question is very simple: Would the state rather have sales of 1,000 ounces at 6% sales tax or (potential) sales of 1 million ounces at royalties of $4 per ounce.” He added, “We anticipate that once the sales tax is removed, we can generate 100,000 ounces easily within this year. Otherwise, it is going to be a very small, insignificant quantity.”

Simpson admits that his firm initially underestimated the sales tax problem. “We felt we would have not have a difficult time” in marketing the medallions, he said. “The reception (of the test marketing) was favorable but we didn’t sell all of them.”.

Another big problem is that coin and bullion dealers in California do not want to be saddled with state sales tax reporting requirements. They’re not used to dealing with the paper work because most of their gold coin business is exempt, Simpson said.

But the medallions’ popularity must take root here before it catches on in other parts of the country, he said. “It’s the ripple effect. If it (California gold) starts here in California, it can compete fairly and equally with foreign gold. If it is not recognized here, how can expect it to succeed in Arizona and New York City?”