Fireworks excise tax turns into a dud

Nothing is quite as magical as pulling up a lawn chair in your back porch, eating a hot dog, and enjoying a magnificent fireworks display on the 4th of July. What may not be as magical, however, is the amount of additional taxes that individuals have to pay for putting on these shows. According to the Tax Foundation, there are eight states that apply an excise tax to fireworks sales, ranging from two to twelve percent. On top of that, forty-nine of the fifty-one states (D.C. included) require a retailer’s fee in order to sell fireworks, including sparklers. The fees range from $10 to $20,000. These fees turn into a hidden additional costs for customers. While nothing beats watching firework shells turning into beautiful displays, the additional taxes and fees are a nuisance to many throughout the country.

An excise tax is a tax that is paid when purchases are made on a specific good. An example of an excise tax would be a gasoline purchase at a gas station. The tax is already built into the price so if you pay $3.15 for gasoline, you are paying for the price of gasoline plus the tax. The fact that the tax is built into the price often makes it very deceiving to customers.

Three of the states (West Virginia, Georgia, and Indiana) that impose excise taxes on fireworks made predictions on how much they would receive in tax revenue through fireworks sales. They made their revenue predictions by calculating the total amount in tax revenue divided by total citizens in the state. This calculation was referenced to as taxes collected per person. The attempt to gain more revenue through excise taxes on fireworks seemed to be a dud for every state but Indiana. By calculating the taxes collected per person and matching the predictions up to the actual results, we are able to see that West Virginia and Georgia have fallen well below their goal. Georgia, with an excise tax of five percent, collected $0.12 per person, which is below their prediction of $0.48. West Virginia, with an excise tax of twelve percent, collected $0.43 per person, which does not come close to their prediction of $1.16. Indiana is the only state to meet their prediction and more by collecting $0.43 per person, six cents above their goal. The most likely reason for West Virginia and Georgia falling behind their predictions is due to individuals driving to neighboring states that do not have an excise tax to purchase fireworks. Indiana has a geographical advantage as Illinois has some of the most restrictive fireworks laws in the nation and Michigan has an excise tax at 6 percent.

Based on the data provided, there appears to be a negative impact on most states that implement excise taxes on fireworks. In an attempt to gain extra revenue, states have accomplished the opposite and driven fireworks sales out of their state, potentially creating revenue in neighboring ones. The moral of the story? Do not mess with people’s fireworks on the 4th of July.

Patrick Wool is a Communications Intern at Truth in Accounting, a 501(c)(3) nonprofit organization based in Chicago that researches government financial data and promotes transparency for a better-informed citizenry.