State Lawmakers Push Back Against Philadelphia Soda Tax

The beverage industry’s efforts to derail Philadelphia’s new controversial tax on sweetened drinks have thus far been unsuccessful, leading to higher prices and unhappy customers when the tax went into effect on Jan. 1. Now, dozens of state lawmakers are going after the city’s tax, calling it an “impermissible sales tax” that “sets a dangerous precedent.”

Not familiar with the Philly soda tax? That’s okay. Here are the basics. Instead of taxing sugary drinks at the retail level, it occurs at the wholesale level, leaving retailers to decide whether or not to pass the cost on to customers (hint: they are).

Additionally, the tax isn’t based on the value of the beverage but on its volume, with the city charging 1.5 cents per ounce. So a 20-ounce soda is hit with 30 cents in tax, regardless of retail price.

Challengers to the Philly tax, which also applies to diet drinks, argue that it’s a violation of Pennsylvania’s Sterling Act, a law stating that cities and local governments “shall not have authority to levy, assess and collect… any tax on a privilege, transaction, subject or occupation, or on personal property, which is now or may hereafter become subject to a State tax.”

Since the state already charges sales tax on these drinks, the American Beverage Association and its fellow plaintiffs have argued that Philadelphia is breaking the law.

A brief [PDF] filed today by five state senators and 31 state representatives accuses Philadelphia of trying to sidestep the Sterling Act “by semantics.”

The city had argued that because the tax is imposed at the distribution stage, it is different than a sales tax, but these legislators contend that nothing in the law dictates that two taxes need to be imposed at the same point in the supply chain for them to be duplicative. Ultimately, notes the brief, while the tax might be collected at the point of distribution, it’s really being paid for by consumers who now pay higher prices.

Additionally, the legislators maintain that the higher cost for sodas in the state’s biggest city could have the effect of hurting the state’s bottom line. One of the goals of the Philly tax is to curb consumption of sugary drinks, which means fewer drinks sold, which could mean less tax revenure for the state.

The lawmakers also agree with the plaintiffs’ contention that the tax violates the Uniformity Clause of the Pennsylvania Constitution, as some products are significantly more affected than others.

For example, before the tax a generic 2-liter of “cola” could be purchased for as little as $.79, while the same volume of some store-brand sodas often sold for $2.50 or more, especially at small stores. The new tax adds $1 to each of those, more than doubling the final cost of the generic but only adding around 40% to the price of the name-brand product.

According to prices surveyed around the city, the lawmakers found that prices were up anywhere from 6% for a 4-pack of Red Bull to 78% for some diet generic tonic water.

“These percentages are all additional charges being borne by the consumer,” reads the brief. “For this court to conclude otherwise would grant the City of Philadelphia, and eventually other municipalities, a license to impose taxes on virtually anything already taxed by the Commonwealth merely by shifting a notch ahead of the chain in Commerce. This circumventing of the Sterling Act cannot stand.”

The city has positioned the tax as an easy way to bring in millions of dollars in revenue to fund early childhood education, but critics of the tax have questioned the logic underlying that motive. If the goal is to curb obesity, should the city be making long-term goals based on revenue that will decrease?

Sen. Anthony H. Williams of Philadelphia is among those who contend that the bill unfairly targets lower-income residents.

“It is having a very, very negative impact on the community that they thought they were going to help,” Williams told the Philadelphia Inquirer. “The execution of it in using this particular tax is an experiment that needs to be stopped and rethought.”