Proponents of Tennessee having its own gold depository say that investing in gold could protect the state and its residents during severe economic downturns.
But in a new report, published Tuesday, members of the Tennessee Advisory Commission on Intergovernmental Relations (TACIR), said now is not the time.
The report said that a state depository is not feasible. This, because of high costs, a lack of demonstrated demand, and the fact that precious metals are not exempt from sales taxes in Tennessee.
“They say that the advantages for an in-state depository include creating a revenue source for the state, primarily through storage fees, and providing additional services to its customers such as facilitating in-kind transactions by depositors,” TACIR officials said.
“Additionally, they say a state depository could serve as a first step towards the state creating a state-backed currency.”
The first and only state bullion depository in the United States is the Texas Bullion Depository, according to TACIR’s report.
TACIR officials said a state depository is not feasible in Tennessee for the following reasons:
• Building a new depository would have substantial up-front costs, potentially costing millions or tens of millions of dollars. State oversight could cost the state a few hundred thousand dollars per year or more.
• No institutional investment funds seem inclined to buy or store gold in Tennessee.
• To make enough revenue from storage fees to cover costs, a depository would probably need a minimum of approximately $1 billion in deposits.
“Tennessee is one of only eight states — of the 45 states with a sales tax — that does not exempt any of the sales of precious metal coins and bullion,” according to TACIR.
“Tennesseans can avoid paying sales tax by buying and storing precious metals in states that do not tax the sales.”
Delaying enacting a sales tax exemption for precious metal coins and bullion may help ensure that Tennessee does not lose any of the federal funds it is set to receive. That money will come via the American Rescue Plan Act, TACIR officials said in their report.
“The act includes a provision that requires states to give back federal funds used for ‘a reduction in the net tax revenue,’” according to the TACIR report.
“If the General Assembly enacts a sales tax exemption that results in a reduction in the net tax revenue of the state before Tennessee spends all of the $4 billion that it is set to receive through the Act, the state may have to give back some federal funds.”
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