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Soda Tax: A Final Decision

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For over a year we have been vigilantly watching the progress of Philadelphia’s Beverage Tax, aka the Soda Tax, which was imposed January 1, 2017 on soda and other sweetened drinks. Along with heated rhetoric from both sides, the tax has encountered numerous ups and downs, facing both support and opposition until the final ruling was announced on July 18, 2018.

While California has ruled out any new taxes on soda until 2030, which appeared to be promising news for industries affected by such taxes, the Pennsylvania Supreme Court nevertheless put an end to all the speculation and concern in the city of Philadelphia, when they upheld the Beverage Tax. Their support was based on a 4-2 majority opinion that affirmed “the city did not violate state law by instituting the 1.5 cents-per-ounce tax on the drinks.”

Since it was first enacted, those defending the tax not only anticipated that the tax would deter the consumption of unhealthy sugary drinks. They also promoted the goal to use the newly generated tax revenue, estimated at about $79 million in the first year, to fund pre-K community schools and park improvements, as well as for updating libraries and recreation centers.

It seemed like a win-win situation: an increase in financial support for essential programs benefiting the families in the city while also encouraging healthier nutritional habits. But the benefits have not come without some disadvantages! The tax adds about $1 to the cost of a two liter bottle of soda and $2.16 to a 12 pack of 12 ounce sodas. As such, the Pennsylvania Food Merchants Association had been strongly requesting an appeal of the tax, fearful that it would force consumers to leave the city to purchase these same beverages – and it has. Alex Baloga, Association spokesperson said that some stores in Philadelphia reported, “Beverage sales falling about 50%.” Since shoppers usually do not purchase just one item, those who abandoned the city grocers, taking their business to other areas also caused a fall in overall sales, with some stores recording total sales losses of 10% or more.

At Sobel & Co. we have seen a significant effect on businesses that we work with in the food retail world, and it continues to be a major concern. 

Jobs, as well as sales, have dropped as a result of the tax, but the Supreme Court ruling rejected these challenges by the merchants and the beverage industry on the grounds that it is not illegal and it does not create a situation of double taxation as claimed.

On the flip side, there were many who cheered the Supreme Court decision based on the strong focus on public health and the alarming concern over obesity.  As these topics dominate the headlines, more cities may enact similar measures in the years to come. 

Chris Martin
Sobel & Co.