Soda Tax Dollars Keep Flowing in Philly After High Court OK

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By Leslie A. Pappas

A split Pennsylvania Supreme Court declared that Philadelphia’s soda tax is legal, a major victory for the soda tax movement that has sputtered nationally.

The 1.5-cents-per-ounce tax has been hampered for years by a legal challenge led by the American Beverage Association. The tax on sweetened beverages was designed to fund free pre-kindergarten education and rebuild playgrounds, libraries, parks, and recreation centers.

Philadelphia Mayor Jim Kenney (D) said the city “will now proceed expeditiously with our original plans—delayed in whole or part by nearly two years of litigation—to fully ramp up these programs now that the legal challenge has been resolved.”

The city has collected $109.8 million from the tax since it took effect, based on collections through the end of June, city spokesman Mike Dunn told Bloomberg Tax July 18. In its first 18 months, the beverage tax opened up early childhood education to 2,700 three- and four-year-old children and created 11 new community schools serving 6,000 students, he said.

The city has held off on full implementation of some of the programs the tax would fund due to the litigation, Dunn said. Now that the litigation is resolved, the city plans to expand pre-k seats by 3,000 each year, add 20 community schools by FY 2013, and move forward with initiatives to improve parks, rec centers, and libraries, he said.

The Coca-Cola Co., PepsiCo Inc., and the American Beverage Association declined to comment on the ruling directly, referring questions to a spokesman for the Ax the Bev Tax coalition.

“We are clearly disappointed” that the court upheld “Philadelphia’s wildly unpopular beverage tax,” coalition spokesman Anthony Campisi told Bloomberg Tax in an email. “Sixty percent of Philadelphia voters oppose the tax, and Pennsylvania voters by a 2-to-1 margin oppose food and beverage taxes—so this is a very unpopular policy.”

The group blames the tax for nearly 1,200 jobs lost in the city. Major beverage bottlers reported a 29 percent decline in sales in Philadelphia after the tax was implemented, according to a study the group commissioned in December.

Not Duplicative

In the decision written by Chief Justice Thomas G. Saylor, the court ruled 4-2 that the city’s tax doesn’t duplicate the state’s sales and use tax and therefore doesn’t violate the state’s Sterling Act. The Act gives Philadelphia broad authority to impose taxes necessary to meet its local needs as long as it doesn’t duplicate existing state taxes.

Philadelphia’s beverage tax, which took effect Jan. 1, 2017, is imposed on distributors of sweetened beverages such as soda and sports drinks.

“The Commonwealth could, but does not, tax the distributor/dealer level transactions or subjects targeted by the beverage tax,” and the Sterling Act allows the city to tax “any and all subjects” that the state could but doesn’t currently tax, Saylor wrote.

The ruling upholds a June 2017 decision by the Pennsylvania’s Commonwealth Court in the city’s favor.

In a dissenting opinion, Justice David Wecht disagreed with the majority, arguing that the tax was “nominally” levied on distributors, but the evidence revealed a tax on consumers of sweetened beverages. Justice Sallie Updyke Mundy also wrote a dissent, finding the tax wasn’t on all distributors in the city but on the sweetened beverages that were sold within the city limits.

A bill in the state legislature ( H.B. 2241) that would preempt Philadelphia’s beverage tax and make it illegal for other municipalities to pass such measures remains in committee.

Fizzling Movement?

Berkeley, Calif., launched the soda tax movement in 2014, and results have been mixed since then as only cities, not states, have actually enacted similar taxes. Cook County, Ill., which includes Chicago, repealed its soda tax in October amid controversy. And legislative efforts in Michigan, Arizona, and Washington state have stalled.

The soda industry won a 12-year ban on California state or local soda taxes in exchange for dropping a November ballot measure that would have made it more difficult to enact a broad range of taxes.

Former New York Mayor Michael Bloomberg, a long-time critic of the health effects of sweetened beverages, favors Philadelphia’s soda tax and has paid for advertising that supports it. Bloomberg Tax is operated by entities controlled by Michael Bloomberg.

The case is Williams v. Philadelphia , Pa., Nos. 2 & 3 EAP 2018, 7/18/18 .

To contact the reporter on this story: Leslie A. Pappas in Philadelphia at lpappas@bloomberglaw.com

To contact the editor responsible for this story: Ryan C. Tuck at rtuck@bloombergtax.com

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