City Fee on Krugerrands Would Be Illegal, Attorney Testifies

Los Angeles Mayor Tom Bradley’s proposal to levy a city fee on Krugerrands, South African gold coins, would violate state laws governing both gross receipts taxes and sales taxes, a spokesman for the city attorney’s office testified Tuesday during hearings on the divestment plan announced last week by the mayor.

Assistant City Atty. Richard Dawson told members of the City Council Finance Committee that such a fee would constitute a form of taxation that would be illegal for two reasons:

- Banks, which sell Krugerrands, are exempted by the state Constitution from gross receipts taxes.

- Other businesses that sell Krugerrands already are subject to gross receipts taxes imposed by the state, and the city receives a portion of those tax revenues.

If the city did impose its own tax on top of the existing state tax, Dawson said, the state would be required to stop remitting the portion of the tax revenue, about $250 million a year, that the city has been getting up to now.

Moreover, Dawson said, the City Charter prohibits it from imposing a tax on Krugerrands unless it places the same tax on the sale of all other forms of gold bullion.

Dawson pointed to yet another obstacle. Any gold bullion transaction of more than $1,000 is exempt from sales tax under state law. Since Krugerrands usually are purchased as investments, Dawson said, it is probable that most transactions involving the gold coins would not be subject to a sales tax.