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Soda Taxes Impacting Grocery Retailers

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For over two years we have been blogging and reporting on “soda taxes,” as it has been impacting grocery retailers across the country.  Philadelphia has garnered much of the attention over the months with its Beverage Tax, and as recently as August 21, 2019, Laura McCrystal offered an update entitled, “Philly soda tax: Here’s how much money it has raised, and how it's been spent.”  In this article she points out that the continuing legal challenges from the beverage industry are offset by the growing tax funds that were designated to be used in a “rebuild program” for improving Pre-K programs, schools, recreation centers, libraries and parks in Philadelphia. The progress can be tracked to show that between January 2017 and June 2019, the 1.5 cents per ounce tax raised $191.7 million and is anticipated to generate an additional $75.9 million in the 2020. Budget adjustments have been made throughout the two and a half years since the tax was passed, especially reflecting the decrease in beverage sales since the law took effect in Philadelphia. What we would like to point out is that there has been little to no discussion regarding income tax revenue that the City of Philadelphia collects at the business level. Philadelphia actually taxes businesses based on a combination of gross receipts and net income with its BIRT (Business Income & Receipts Tax). With grocery store revenues and profits taking a direct hit from the Beverage Tax, the City is undoubtedly collecting significantly less income tax revenue then in pre-Beverage Tax times.

While the tax remains vulnerable, continuously under attack by the American Beverage Association and the ‘Ax the Bev Tax Coalition,” nonetheless, Jim Kenney’s win in the mayoral Democratic primary this May gave more support to the Act which he, and his supporters, believe was the single greatest achievement of his first term.  

When he first assumed office, Kenney embraced the popular health-focused movement that was gaining momentum across the country. A tax on sodas and other high sugar/high calorie drinks was seen as one of the best weapons in the battle to combat the obesity and diabetes epidemics. Following in Kenney’s footsteps, Oakland, Boulder, and Chicago passed similar laws of their own.

In “Is Big Soda Winning the Soft Drink Wars?” Jeremy B. White writes about the power of the opposition to win battles at the local level. One of the successful strategies has been to introduce ‘preemption’ laws that prevent the cities from imposing taxes locally. From Arizona to Michigan and Washington, cities are being limited in their taxing authority. In California, the beverage industry leveraged the statewide system to include a measure on the state ballot that prohibited any city or locality from taxing residents for any reason unless the tax is approved by 2/3 of the voters. The law was passed and it will remain in effective until 2030, essentially stopping any of the cities in the state from leveraging tax on residents unless they can overcome the 2/3 hurdle.

This focus on the local scene is an interesting tactic for the beverage industry. It enables them to send a message to the individuals and businesses in these communities that they are fighting hard on their behalf and working to keep them from being over taxed. These local legislatures maintain close relationships with their constituents and as a result they have their trust and support. In addition, it is easier to have these battles at the state level rather than in a national setting where the spotlight on the obesity issues and other health concerns is more prominent.  

We will continue to keep you informed regarding the ups and downs of the soda tax debate – watching for trends indicating decreasing sales of sugary drinks as well as watching for increases in the passage of statewide preemption bills that are forcing cities to back off of levying a soda tax.

For more information please contact Chris Martin, SobelCo at 973-994-9494 or chris.martin@sobelcollc.com

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