A Louisiana law that took effect in August (Act 389 [pdf]) seeks to prevent the sale of stolen bridges by outlawing cash transactions in used goods. Secondhand dealers are also required to record the IDs of all buyers.
On its surface Act 389 addresses a real and growing problem. As the recession deepens and the prices of commodities soar, the theft of goods — like copper from construction sites — has increased dramatically and everywhere. For example, this month two brothers in Pennsylvania were charged with stealing a 50-by-20-foot bridge and selling “the 15 1/2 tons of scrap metal for more than $5,000.”
It is difficult, however, to view the Act as anything other than a tyrannical tax grab. It is deliberately so broad as to explicitly include “pictures, objects of art, clothing,” tools, automobile parts and electronics (such as radios). In short, thrift stores, flea markets, eBay, and yard sales are deliberately included; all they need to do is sell more than one item a month to be a covered business.
And if America’s most aggressive state crackdown on the “gray market” in used goods proves to be revenue-enhancing, other cash-starved states are likely to follow Louisiana’s lead.
There at least two ways in which Act 389 may rake in revenue:
1. Those who do not comply can be fined.
2. The Act specifies that instead of cash, a secondhand dealer must accept a “check, electronic transfers, or money order” issued in the dealer’s name. The required paper trails and reporting requirements set the stage for the future taxation of a relatively untapped activity. Secondhand businesses are notorious for tax evasion simply because their goods are often acquired and sold without paperwork. Act 398 closes that loophole with noose-like tightness.
Act 389 requires “[a]ll payments made by check, electronic transfers, or money order shall be reported separately in . . . daily reports.” Along with a record of financial data that can be readily provided to government authorities, the dealer must maintain and report:
- the date and place of each purchase he makes
- the name and address of a seller, including information from a government-issued ID
- the license number of the vehicle delivering a purchase
- a full description of the good purchased (including weight)
In short, the government demands proprietary information, which is a business asset, even though no crime is alleged.
In 1862 Congress declared U.S. currency legal tender for all debts, and it is not clear that a state has the authority to ban its residents from using legal tender to make a legal purchase. Nevertheless both the IRS and state taxing agencies are sure to applaud the substituting of a paper trail for cash in any economic transaction. As the self-interested president of Mastercard, Ajay Banga, has stated, “You can’t evade taxes if you accept credit cards.”
Privacy advocates will decry the creation of yet another government database to track every penny that goes into or out of a pocket. Some businesses will undoubtedly close their doors due to the sheer cost and aggravation of compliance. Struggling individuals are sure to resent the state regulation of innocuous ventures like yard sales or collecting cans off the roadside. They will howl at the prospect of paying taxes on selling used goods on which taxes were paid when new from income that was also taxed.
Louisiana will probably act to reduce the “howl factor.”
How a law is enforced is a different matter from what the law says. Enforcement is often selective and to date, thrift shops are reportedly still accepting cash. It is unlikely that the no-cash policy will ever be applied to a 25-cent child’s toy at a yard sale. Large and permanent business-like junk yards are far better targets in terms of public relations and the money to be gleaned in fines or “escaped” taxes.
Nevertheless, the law could be applied with no hesitation to anyone the authorities wish to target. Moreover the revenue net can be widened at will, and the information reported can be used to create new and innovative taxes.
Make no mistake, other states are watching.