Fireworks, Pigou, and You

Interestingly, many states include sales tax on fireworks as a “Pigouvian tax”.

An article from The Tax Foundation explains why: “Wildfires can spread rapidly across property and even state lines, and can begin with just a few sparks. Reasonably, then, many states dedicate funds from fireworks taxes and license fees towards firefighting and fireman training. This is a textbook example of what is called a “Pigouvian tax.” Named after the English economist Arthur Pigou who first articulated the idea, Pigouvian taxes are intended to raise the cost of goods that damage third parties when they are consumed. Revenues from Pigouvian taxes are then used to compensate the people who were damaged.”

There are also other sales tax considerations for business owners selling fireworks, including outright bans, extra insurance, high annual permit and licensing fees, and other regulatory barriers, as well as “distribution licensing fees ranging from minimal costs to cover necessary paperwork to up to $5,000 a year in some cases.”

Read the full article here, and let Vertex Inc.’s sales and use tax solutions keep your business on the right side of the fireworks this summer.