The Bloomberg BNA SALT Blog is a forum for practitioners and Bloomberg BNA editors to share ideas, raise issues, and network with colleagues about state and local tax topics. The ideas presented here are those of individuals and Bloomberg BNA bears no responsibility for the appropriateness or accuracy of the communications between group members.
Wednesday, May 14, 2014
Soft drinks have been linked to ills such as diabetes, high blood
pressure and obesity. To combat this, states
like California and Illinois are considering legislation that would impose
taxes on sugar-sweetened beverages, including soft drinks. But special
levies on soda fall flat with critics of these measures, who argue that taxing
soft drink consumption has little impact on obesity rates and
disproportionately affects lower income individuals.
The California bill, introduced in 2013, would impose a $0.01 per ounce
tax on sugar-sweetened beverages, generating about $1.8 billion in additional
revenue, which would go towards funding prevention programs that promote
physical activity and improve the quality of school lunches. Similar legislation introduced in the
Illinois General Assembly (SB 3524) earlier this year would produce an
estimated $600 million for prevention, wellness, and Medicaid services.
This past April, the California Senate passed SB 1000, requiring sugary
beverages to carry the following warning label: STATE OF CALIFORNIA SAFETY
WARNING: Drinking beverages with added sugar(s) contributes to obesity,
diabetes, and tooth decay.
Four states currently impose an excise tax on soda:
Twenty-three jurisdictions tax soft drinks at the normal sales tax
rate, even in those states where “grocery” items are exempted from normal sales
tax or taxed at a reduced rate. And,
depending on the state’s definition of “sugary beverage,” items like sports
drinks, energy drinks, and flavored water also may be subject to the excise tax.
Why tax sugary beverages? Studies
have shown that increased consumption of sugary beverages directly relates to weight
gain and obesity. States want to combat this
problem and reduce rising health care costs associated with treating medical conditions
caused by being overweight, which include an increased risk of developing heart
disease, diabetes, stroke, and hypertension. The theory is that a “soda tax” will dissuade
consumers from purchasing soft drinks. People
would then drink less of them, leading to lower obesity rates and health care
costs. States are also able to use the revenue
from sugary beverage taxes to fund health programs aimed at education,
prevention, and wellness programs to further combat obesity.
Critics argue that taxing sugary beverages will not have much effect on
obesity rates. Sugar-sweetened beverages
only account for about 6 percent of caloric consumption, so there are other
sources of those extra calories people consume every day—consumers can simply
substitute other products for soda. A
Northwestern University study found that most obese people actually drink diet
soda, which does not contain sugar, so a sugary beverage tax would have no beneficial
effect on those individuals. Additionally,
economists argue that sugary beverage taxes would disproportionately affect
lower income individuals.
While some states have repealed their sugary beverage taxes (Louisiana,
Maine, South Carolina, and Washington, to name a few), and others have been
unsuccessful in passing legislation, the push to tax soft drinks is stronger
than ever. In 2009, Congress considered a
federal excise tax on soda of $0.03 per 12 ounces to help fund the Patient Protection
and Affordable Care Act. In 2011, 14
states considered legislation implementing excise taxes on soda. According to one report from the Tax
Foundation, these taxes could raise the price of sugary beverages anywhere from
68 to 264 percent.
The California and Illinois bills are just the
latest in a long list of attempts to enact taxes on sugary beverages. No matter what the legislature calls them—“soda taxes,” “soft drink taxes” or “sugar-sweetened
beverage taxes”—the discussion about excise taxes on soft
drinks is here to stay (at least for a while). Only time will tell if such legislation will
the discussion on Bloomberg BNA’s State Tax Group on LinkedIn: Do you think
your state will enact a “soda tax”?
For more information about this and other state tax issues,
sign up for a free trial of the Bloomberg BNA Premier State Tax Library.
us on Twitter: @BBNAtax
to post a comment.