Extras on Excise: Kill the FICA Deductions, or the Coca Cola Gets It!

Little did Alabama’s legislators know when they headed off for recess in early June that their vacations were getting cut short one month later by that ever pressing state need: tax revenue.

Alabama Gov. Robert Bentley (R) made an official call for a special session of the state Legislature on July 10. During the televised press conference, he announced a number of proposals to mitigate current state revenue problems. 

After rattling some of these off, he got to an interesting suggestion. If state legislators decide they don’t want to follow through with Bentley’s proposal to eliminate deductions for Alabamans’ FICA payments, a different victim will be selected. 

That’s right, soft drinks are going to be the sacrificial virgin to the treasury gods for state revenue if they don’t go with Plan A. Or, in less hyperbolic terms, Gov. Bentley offered a soft drink tax proposal as an alternative to the FICA deduction elimination idea.

At the time of the press conference, Bentley had not determined the tax rate or the specifics of the tax base for the legislation he will be proposing. However, he did clarify that he does not intend on extending the tax to bottled water or juice. 

The reason behind these proposals? The state needs revenue to “backfill” switching over the use tax revenues from the Education Trust Fund to the General Fund. 

The legislature’s response to the special session was not a particularly favorable one. The House convened on Monday, July 13 at 4:00 pm and adjourned promptly at 4:20 pm, not to meet again until Aug. 3. 

Over to the Northeast, Vermont finally got what it wanted when Gov. Peter Shumlin (D) signed H.B. 489. This bill, signed into law on June 11 and effective July 1, revokes soda’s exemption from sales taxes. H.B. 489 clarifies that soft drinks are not included in the statutory definition of “food and food ingredients,” which are not taxable. As a result, Vermonters must now pay 6 percent in sales tax on their drinks. Or, they could just drive over into New Hampshire where there is no sales tax on anything. 

The tax losers this year so far, however, have been the state excise tax bills that Bloomberg BNA reported on earlier this year. Soda excise tax bills in Vermont, Connecticut and Illinois have all been unsuccessful so far. Additionally, one California bill sought to put a “health impact fee” on $0.02 per fluid ounce on bottled sugary beverages. That too failed with flying colors.

Currently, there are four states with excise taxes on soft drinks: Arkansas, Tennessee, Virginia and West Virginia. Whether or not the Alabama gubernatorial proposal to treat America’s most beloved carbonated liquid the same way succeed is yet to be determined.

Continue the discussion with Bloomberg BNA’s State Tax Group on LinkedIn: Are soft drink excise taxes sensible state tax policy? 

With a free trial to Premier State Tax Library, practitioners have a single trusted resource that provides all of the tools and information they need to develop and implement the right tax strategies. 

By Laura Lieberman