It’s law: Gold and silver approved as currency in Utah

You can now use gold and silver as legal tender in Utah. Here’s how it works.

Three weeks ago, Utah quietly became the first state to recognize gold and silver as an alternative currency. Utah Governor Gary Herbert signed House Bill 157 along with 37 other bills on March 27, 2012. Here’s what HB 157 does:

First, you can’t expect to use your Canadian Maple Leafs or Chinese Pandas as legal tender. Utah’s bill identifies exactly what types of gold and silver the state will accept as legal tender, and that’s only “gold or silver coin that is issued by the United States.” Utah calls U.S.-issued gold and silver coins, “specie legal tender.”

Line 72 in the bill states “Specie legal tender is legal tender in the state.” That means gold and silver coins are exempt from sales and use taxes, and it allows for a tax credit when exchanging “one form of legal tender for another form of legal tender.”

Now, Utah gold and silver investors won’t have to pay capital gains taxes when they sell their gold and silver for paper money (even if they’ve made a substantial profit). Of course, investors will still owe the Federal government capital gains, but at least Utah’s holding out a small umbrella for gold and silver investors.

There are some tricky issues that crop up when paying in gold and silver. What happens, for instance, if you want to mail a Silver Eagle as payment for goods and the spot price of silver drops 5 percent while your coin is in the mail? If we extend the logic in the bill, that shouldn’t matter because the amount of gold or silver due at the time of the sale (as determined by using London spot prices) will stay the same. If silver drops shortly after you’ve made a purchase using the silver, the seller’s the one “taking a loss.”

The bill addresses this issue in the context of paying taxes. Should the state of Utah decide it wants to tax specie legal tender, it lays out how the process would work. Namely, the seller would need to note:

  • The purchase price in specie legal tender
  • The amount of tax due
  • The tax rate
  • The date of the transaction
  • The most recent London fixing price

It creates some extra paperwork for sellers, but I imagine the people who don’t trust paper money are just fine with that. Utah’s paving the way for other states to follow suit (specifically it looks like Missouri might be next). The real kicker would be if we could get the Federal government on board. But, if we somehow get to that point, I suspect Congress will have bigger fish to fry – things like riots and bread lines.

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