|
The statutory mission of the Iowa Department of Revenue is to serve
Iowans and support state government by collecting all taxes required by
law, but no more.
The Iowa Department of Revenue (IDR) estimated that sales of
fireworks in FY 2017 would total $17.8 million and generate $1.1 million in General
Fund revenue in FY 2017. Through an examination of sales and use tax returns,
IDR estimates that actual sales in FY 2017 were $9.9 million, generating $0.6
million in General Fund revenue. The original estimate suggested that taxable
sales would be $24.8 million in FY 2018, while the Department has already
observed $16.0 million in taxable sales in the first quarter resulting in $1.0
million in sales and use tax revenue.
Background
Senate File 489 legalized the sale of
fireworks in Iowa for the Fourth of July and New Year’s holidays each year. The
Iowa Department of Revenue (IDR) estimate for SSB1051, which was incorporated
into the LSA fiscal estimate for SF489, was that total sales and use tax
revenues would increase $1.1 million in FY 2017 and $1.5 million in FY 2018. Sales
are allowed between June 1 and July 8 as well as December 10 through January 3,
and cities are allowed to make certain restrictions on the sale and use of
fireworks. The time frame of sales means that sales will be reported in every
quarter of the fiscal year.
Sales
and Use Tax Payments of Firework-Exclusive Retailers
Using data from the quarterly returns filed
July 31 for the June (Q4 in FY 2017) quarter and October 31 for the September
(Q1 in FY 2018) quarter, the Department can identify some sales as specifically
resulting from the legalization of fireworks. Retailers with “firework” or
“pyrotechnic” in the business name remitted a total of $0.2 million in sales
and use taxes in the June quarter and $0.3 million in the September quarter. Of
these businesses for these two quarters, 30 and 35 establishments respectively
remitted sales and use tax and filed a quarterly return. In addition, 15
businesses in the June quarter and eight businesses in the September quarter
filed a return but did not remit any sales and use tax payment, suggesting that
they had intended to sell fireworks during the July 4 holiday season but were
unable to do so, perhaps because of local restrictions on the sale or use of
fireworks.
Many existing retailers also likely began
selling fireworks. According to the State Fire Marshal, a total of 665 consumer
firework sales licenses were issued after legalization spanning June 4 through
July 3. In the IDR sales and use tax system, only 51 unique permits were found
among retailers that presumably sold only fireworks. This suggests that 614
existing retailers received licenses and sold fireworks mostly during late June
and early July. This is corroborated by the list of approved retailers from the
State Fire Marshal, which includes many traditional retail chains among the 348
permanent structures that received a license; the other licenses were issued to
retailers with a temporary structure.
Imputation
of Non-Firework-Exclusive Retailers
The primary hurdle to accurately estimating
the total value of fireworks sold to date is that existing retailers do not
report what share of their total sales were newly-legalized fireworks. Thus, it
is necessary to assume how the sales of existing retailers who are now selling
fireworks compares to those newly-remitting firework-exclusive retailers.
Among the 31 firework-exclusive retailers who
filed a return for the June quarter, excluding those who reported no sales, the
median taxable sales was $26,500 and the sales and use tax remittance was $1,590.
The 25th percentile of sellers made $11,033 in sales and remitted
$662. If it is assumed that each existing retailer had fireworks sales equal to
the 25th percentile of firework-exclusive retailers, then it is
estimated that total sales of fireworks for the June quarter of FY 2017 was
$9.9 million with associated sales and use tax totaling $0.6 million.
A similar analysis of the September quarter of
FY 2018 finds median sales of $34,500 and a 25th percentile of $17,017
among the 36 firework retailers that filed a return. If it is again assumed
that existing retailers had average sales equal to the 25th
percentile of firework- exclusive retailers, then total estimated sales of
fireworks in the September quarter were $16.0 million and associated sales and
use tax collections were $1.0 million.
If you have any questions regarding these
estimates, feel free to call Aaron Barker at 725-4018 or Amy Harris at
281-0196.
|
