This past Monday, July 4, Americans celebrated Independence Day. Around the country, spectacular pyrotechnic displays lit up the night sky. Most of the grandiose displays we know and love are orchestrated by professionals using display fireworks; however, in some states, sales by retailers of consumer fireworks are also legal. In fact, consumer fireworks are legal in over half of the states in the U.S.

According to the American Pyrotechnic Association, $755 million was spent on consumer fireworks last year. One would think that those who wish to express their patriotism by setting off fireworks beyond the holiday weekend would take advantage of any post-4th of July firework sales. For those who do, the benefit may be twofold. Purchasers of discount fireworks may benefit from both a reduced purchase price and a reduced sales or use tax liability.

Whether a taxpayer will have a reduced tax bill on discount fireworks will vary by state. In some states, when the sale or purchase price of a taxable item is reduced, the general rate of tax will apply to the purchase price after the discount is applied. However, as is often the case in the realm of sales and use, other states take a different approach requiring retailers to apply sales tax to the original purchase price without regard for any discount or credit.

States like Mississippi and New York allow retailers to calculate the tax due on the sale price of merchandise sold after the discount is applied. Tennessee also allows retailers to calculate the sales tax on the purchaser price after any discount has been applied, but only if the discount or price reduction is not reimbursed by a third party. Otherwise, Tennessee sales tax is due on the full, non-discounted price of the goods. 

Regardless of states’ tax treatment of fireworks, consumer sales are not likely to be affected very much. Considering America’s love affair with Fourth of July fireworks, there is no doubt that American Independence Day festivities will continue to go off with a bang for years to come.

Continue the discussion on Bloomberg BNA’s State Tax Group on LinkedIn: Are you getting the most bang for your buck when buying fireworks?

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By Stephanie E. Cangialosi