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The Philly Soda Tax May Be Legal, But It's Still Bad Policy

The State Supreme Court won't overturn the tax, so lawmakers should do it instead.

Richard B. Levine/NewscomRichard B. Levine/NewscomThe Pennsylvania Supreme Court ruled this week that Philadelphia's 1.5-cent-per-ounce tax on soda and other sugary beverages does not conflict with state law.

A group of city merchants and representatives of the beverage industry had challenged the so-called soda tax on the grounds that it amounts to double taxation, since consumers are already charged a state sales tax on sweetened drinks. Under Pennsylvania law, localities are not allowed to tax anything already taxed by the state. The state Supreme Court rejected that claim in a 4-2 ruling, concluding that the soda tax is applied at the wholesale level and therefore does not conflict with the state sales tax, which is charged at the final point of sale.

"The payer of the beverage tax is the distributor, or in certain circumstances, dealers, but never the purchasing consumer," Chief Justice Thomas Saylor wrote for the majority.

That logic might hold up in the realm of law, but real-world economics show that consumers are paying both the sales tax and the soda tax, which is passed down the supply chain. The tax adds about $1 to a two-liter bottle of soda, and more than $2 to a six-pack of cans.

Consumers are responding to those new incentives by travelling outside Philadelphia to do their shopping. A report by Catalina, a market research firm, found that soda sales inside city limits have fallen by 55 percent since January 1, when the tax took effect; while sales outside the city have grown by 38 percent. That means the tax is costing not only consumers, but city businesses who have lost customers because of it—a completely predictable outcome.

And it's not just soda sales being hit. The tax also applies to fruit juices and sports drinks.

"This duplicative tax has shown to be a financial burden for both consumers, who the tax is getting passed onto, and employers," says Gene Barr, president of the Pennsylvania Chamber. "Taxes that single out particular industries drive customers to other areas to purchase these goods, which can lead to business closures and a loss of revenue that is difficult to overcome."

According to Ax The Bev Tax, a coalition of city businesses, the tax has cost 1,200 jobs across various industries.

About the only people happy with the Supreme Court ruling are, predictably, the city officials who sold the tax as a way to generate $90 million for schools and pre-K programs. Mayor Jim Kenney, in a statement, said the ruling "offers renewed hope for tens of thousands of Philadelphia children and families who struggle for better lives in the face of rampant poverty."

But the city's plans for the soda tax money have already had to be pared back once, because the tax generated about 15 percent less revenue than expected in 2017. And as Baylen Linnekin noted last year, "spending tens of millions of dollars to expand pre-K in a city where even the most optimistic reports show city schools already fail to educate children and are routinely broke may not be the best idea."

This week's ruling is a reminder that legality is not the only measure of good policy. The soda tax should be reconsidered by city officials or blocked by the state legislature, which has the authority to overrule local taxes.

State lawmakers, include some Philadelphia Democrats, have opposed the tax. State Sen. Anthony Williams (D-Philadelphia) authored an amicus brief for the state Supreme Court, urging them to rule against the city.

"I don't like a regressive tax. I don't like it billed as it is, which is helping the poor," Williams tells Billy Penn, a Philadelphia-based alt-news website. "No, you're taxing the poor to help themselves."

State Sen. Scott Wagner (R-York), this year's Republican gubernatorial nominee, took a shot at the soda levies during a campaign event this week, calling for a state to cap the tax.

The Pennsylvania Chamber is urging state lawmakers to pass House Bill 2241, which would prohibit municipalities in Pennsylvania from imposing soda taxes.

Whether lawmakers will do anything about the tax remains to be seen. Although Pennsylvania's legislature is technically a year-round body, the fall session in an election year is not very active, historically.

Photo Credit: Richard B. Levine/Newscom

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  • chemjeff radical individualist||

    Time to buy commercial real estate outside of Philly!

  • Enjoy Every Sandwich||

    But the city's plans for the soda tax money have already had to be pared back once, because the tax generated about 15 percent less revenue than expected in 2017.

    That was predictable. Well, to anybody who isn't a "progressive".

  • ||

    Next stop; the tax needs to be hidden from consumers so they don't decrease tax revenues.

    "The payer of the beverage tax is the distributor, or in certain circumstances, dealers, but never the purchasing consumer," Chief Justice Thomas Saylor wrote for the majority.

    So, rules forbidding merchants from passing the tax on to consumers are already half baked in.

  • Longtobefree||

    Well, the gasoline taxes lead the way.
    Even news organizations report "the price of gasoline" including all taxes, not the actual price of gasoline. So people get mad a the big refiners, not the politicians. As long as that works, politicians will keep it up. It was politicians who required that 'gasoline stores' only post prices that include all taxes. This was done 'to help the consumer' back when gas price wars started, and the (then named) service stations posted the price of gasoline without any taxes to make the best possible case. (Like airlines advertise fares without baggage fees, ticket fees, and a bunch of other things you still have to pay)
    In my neighborhood today the 'price' of gasoline is advertised at $2.67.99 per gallon. But the price of gasoline is really only $2.34.99 per gallon.

  • JunkScienceIsJunk||

    They didn't fail to predict it. They just prioritized other things. It's a sin tax, that's all. They don't like soda and they're willing to accept the economic hit in exchange for reducing the number of people who drink it.

    People who prioritize "progressivIsm" instead, like Bernie Sanders for example, are opposed to the soda tax.

  • Sufi||

    Yes, sin tax. Seattle taxes sugary sodas and I'm all for it. However Seattle does NOT tax food. Charging sales tax for food is a highly regressive tax but it sounds like Philly does tax food by the mention of double taxation. So my 2 cents Philly should keep the soda tax but lose the food tax.

  • Modus Pwnens||

    "The payer of the beverage tax is the distributor, or in certain circumstances, dealers, but never the purchasing consumer," Chief Justice Thomas Saylor wrote for the majority.

    That kind of renders the ban on localities taxing something already taxed by the state null and void, doesn't it? You just have to tax someone else in the supply chain.

  • Rossami||

    Which just means that the state law that was supposed to ban double-taxation was poorly written. It was inevitable that someone would find and exploit this loophole sooner or later. It's up to the legislature to fix it.

  • Don't look at me.||

    Only 1-1/2 cents? Why not a dollar? Think of the children!

  • $park¥ The Misanthrope||

    calling for a state to cap the tax.

    He's gonna bust a cap in that tax.

  • Cheap shot guy||

    Quick question Cathy, why are you still pretending?

  • Rhywun||

    city officials who sold the tax as a way to generate $90 million for schools and pre-K programs

    I thought it was sold as a way to punish the poors for drinking poor-people stuff. You mean to say it was really just a shakedown by the teachers' union all along? I am shocked!

  • perlchpr||

    If the goal is supposedly to fight childhood obesity, why would not every cent of the money collected go towards physical activity programs for kids, and the resources to make sure that those programs were actually available?

  • creech||

    Tax is also on zero calorie drinks, such as Diet Coke, rendering the "obesity" claim so much b.s. Pa Supreme Court is Dem controlled, thanks to GOP fecklessness in last election where 3 judgeships were lost.

  • Rhywun||

    They should just grow a pair and call it what it really is - another sin tax. The purpose of which, like all sin taxes, is to provide a long-term, sustainable (they love that word) source of dollars to line the pockets of cronies. The last thing in the world they want is for people to actually follow the fake goal they tell everyone (stop drinking soda, stop smoking, stop drinking beer), because then the jig is up.

  • sarcasmic||

    They want people to pay for their sins.

  • C. S. P. Schofield||

    I live in the Philly suburbs. They DO call it a sin tax...or at least publicly state that it is supposed to make people change bad behavior. Of course they say that when they are challenged on it being regressive. If they are challenged on it being a Sin tax, they talk about all the good the money will be doing in the schools. And so on. They are quite prepared to admit each Progressive flaw in the tax....so long as the one they are admitting ti at the moment isn't the one you tried to get them to address.

    Guillotine bait, the lot of 'em.

  • aajax||

    Even artificial sweeteners provoke an insulin response, so contribute to the problem.

  • Fist of Etiquette||

    Philacrapia may be legal, but it's still bad policy.

  • Diane Reynolds (Paul.)||

    It's a risky scheme.

  • Rockabilly||

    The progressive loves to tax and regulate

    It turns them on

    Now the soda tax is for your own good cause soda is bad for you, even if it's organic.

    There's not only sugar in there but the pull tab on the can can hurt

    And you can't use a plastic straw anymore cause they're bad too

  • crufus||

    The tax is hurting the whole grocery business in Philadelphia by getting people to do their grocery shopping in the suburbs.

    It you go to the trouble of driving outside the city to get cheaper soda you are going to buy all your groceries there, especially since the suburban stores probably have lower prices all around.

  • NoVaNick||

    Of course, the progtards love any tax that they don't actually pay, especially if its on the backs of people with icky habits. The non-profits they work for don't pay any taxes either. At least Trump's new tax law applies to universities with large endowments, where a lot of these bad ideas originate.

  • JunkScienceIsJunk||

    Like the University of Pennsylvania (in Philadelphia)? They demonstrated scientifically all of the things we're saying so that we're not accused of relying on conjecture.

    1) They conducted a study which ultimately showed that the increase was directly passed on to consumers and not absorbed by manufacturers or distributors.
    2) Along with Harvard and Hopkins, they conducted another study that showed that it negatively impacted sales (that's where the figure used in this article came from).
    3) They showed that the tax impacted mom and pop stores the most and chain stores the least, further demonstrating that the negative impacts are concentrated on small businesses.

    They're not always the enemy you know.

  • WillPaine||

    A soda tax; here in Boulder we also have such. K; sugar; we ate too much as kids, then as adults we named sugar as the problem to our problems, and decided that if too much sugar was bad, none must be best. Kids; your brain runs on sugar. Ayurvedic medicine prescribes sugar for liver problems/disease; sugar takes the protein load off of organs, allowing afflicted organs to heal more easily. Too much of anything is too much. Not enough is also bad. Concern about kids drinking too much soda (caffiene etc.) should be left to parents to both teach and feed their children well. But nooo, we can fix our failure with a tax on sugar;...not.

  • aajax||

    Ordinarily I am anti-tax, but this seems like a good tax to me. Serving this stuff to kids is child abuse, and adults don't need it either. Don't like the tax? Don't buy the crap.

  • frankania||

    I left PA 30 years ago, because of over-regulation of my house building, and high taxes, and moved to MEXICO. Here I have built 20 plus houses, mostly without any permits. Taxes on our big mansion are 80 bucks a year. Here a quart of Cocacola costs 75 cents.....what does it cost in Philly, now? Just curious...

  • Duelles||

    So. . . . Chief Justice is an idiot if he really did write that the end consumer does not pay. Idiot!

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