Legislative Testimony for LB730, State Ammunition Excise Tax

Good afternoon, Chairman Smith and members of the Revenue Committee.  My name is Sarah Curry, and I am the Policy Director for the Platte Institute.   I am here today to testify in opposition to LB730.

In recent years our country has been shaken by the horrors of gun violence in America.  It has become a topic of discussion, and gun control debates have led to numerous policy suggestions at both our nation’s capital and in the states. One of these suggested policies is just what LB730 is proposing, to create a state levied ammunition excise tax.

The federal government already levies the Firearms and Ammunition Excise Tax on the sale of firearms and ammunition by manufacturers, producers, and importers of 11 percent (Chapter 32 of the IRS, 26 U.S.C 4181).  This bill proposes to add an additional 10 percent to the sales price of any ammunition sold in the state of Nebraska.  Ammunition is already subject to the state sales tax.

Regular purchasers of ammunition buy based on the price per round.  For example, basic .223 rifle ammunition is about 30 cents per round.  When we add the sales tax, it increases the price to about 32 cents, now add the 10 percent excise tax proposed in this bill and the final cost will be closer to 35 cents per round.  That might not sound like a lot, but many people buy ammunition in bulk, sometimes up to 1,200 rounds at a time, so the cost increase will be significant.

When you increase the cost of an item, whether it is by the producer or via a tax, the law of demand must be taken into account.  Some buyers will be deterred from paying exorbitant rates to purchase ammunition, but it is more likely that business for ammunition will cross our borders and purchase ammunition in neighboring states, or purchase it online to circumvent the tax.

This was proven when the city of Seattle passed a tax on all sales of guns and ammunition in 2015.  According to a news story[i], the owner of a large outdoor store which sold guns in Seattle said storewide sales were down 20 percent and gun sales plummeted 60 percent after the tax went into effect. This employer had to lay off employees to make up for the lost revenue.  Another gun dealer left Seattle and moved his store to a nearby city. 

Sound tax policy is having a broad base and low rates.  Ammunition and firearms should be subject to sales taxes, which they already are.  Sound tax policy also states that excise taxes, or special taxes on certain products, be used sparingly and only to pay for externalities.  Excise taxes were started to compensate society for the external costs of using a product, called externalities. For example, if you smoke and you get sick and the public pays for your healthcare, the excise tax on cigarettes is justified.  In this case, no excise tax is justified on ammunition based on externalities. Yes, people use guns in violent crimes.  But the majority of ammunition is used by sportsmen and hunters and will not be used in a violent crime, thus there is a very weak argument for ammunition externalities.

It is a horrible act when innocent lives are taken due to gun violence, and there is sensible policy to address violent crime.  But today we are talking about the tax code, and an excise tax. It is not good public policy to use the tax code to curb our gun violence problem.  

Thank you for the committee’s time and I’m happy to take any questions.