Daily Tax Report: State provides authoritative coverage of state and local tax developments across the 50 U.S. states and the District of Columbia, tracking legislative and regulatory updates,...
Philadelphia's sugar-sweetened beverage tax recently survived a challenge in the Pennsylvania Commonwealth Court. In this article, Cozen O'Connor's Heidi R. Schwartz discusses the decision and where it may be headed.
By Heidi R. Schwartz
Heidi R. Schwartz is an associate with Cozen O'Connor.
A divided Commonwealth Court en banc affirmed preliminary objections by the City of Philadelphia to a challenge to the validity of the City's Sugar-Sweetened Beverage Tax (SBT). Williams v. City of Philadelphia, No. 2077 C.D. 2016 (Pa. Commw. June 14, 2017) (5 to 2). (Although titled the Sugar-Sweetened Beverage Tax, the tax is actually imposed on sweetened beverages generally). The court held that the SBT did not duplicate the state sales and use tax. The court held that the tax was on the non-retail distribution of sweetened beverages and not on retail sales. Looking to the SBT Regulations, the court determined that the tax is imposed on the supply of sweetened beverages to dealers or the acquisition of sweetened beverages by the dealer. Therefore, it taxed a different transaction than the retail sale of tangible personal property.
The court rejected the position that the SBT duplicated the sales tax because the economic impact of the tax was passed on from distributors and dealers to consumers. The petitioners relied on United Tavern Owners of Philadelphia v. School District of Philadelphia, 272 A.2d 868 (Pa. 1971) (plurality opinion), in which the Pennsylvania Supreme Court held that an ordinance authorizing the school district to impose a 10% tax on retail sales of liquor at certain locations in Philadelphia was preempted by the Sterling Act, 53 P.S. §15971, and two state statutes imposing taxes on liquor sales. In United Tavern, the court looked to what is actually being taxed, not the wording of the statute of the enabling act. It rejected the position that the 10% tax was not a sales tax because it was imposed on the transaction between the holder of the retail liquor license and the consumer, while state sales tax is imposed on the transaction between the holder of the retail liquor license and its distributor, the liquor store. The commonwealth court stated that United Tavern Owners was a plurality opinion that has not been adopted by a majority of the Supreme Court, but did not otherwise discuss the case.
The court further rejected petitioners' challenges to the SBT on the grounds that it violated the federal Food Stamp Act and the Uniformity Clause of the Pennsylvania Constitution. The court held that the SBT was not preempted by Section 2013(a) of the federal Food Stamp Act, its regulations, or Section 204(46) of the Tax Code because the federal statute and regulations only prevent the imposition of tax on retail sales or purchase of food made with program benefits. The court held that the SBT did not violate the Uniformity Clause of the Pennsylvania Constitution because the SBT is not a property tax; rather it is a tax on supply, acquisition, and delivery.
Judge Covey, joined by Judge Cohn Jubelirer, disagreed with the majority's analysis that the SBT did not duplicate the sales tax. The dissent documented that the actual language of the ordinance made the tax in substance entirely dependent on retail sales, and the tax should therefore be treated as a retail sales tax and not as a distribution transaction tax. The dissent argued that United Tavern Owners should be followed since it was a longstanding precedent of the Pennsylvania Supreme Court, even though it was a plurality decision.
Plaintiffs' counsel have appealed for a review by the Pennsylvania Supreme Court.
A number of other jurisdictions in the country have enacted or are considering similar taxes. While other jurisdictions no doubt will consider this decision, the Pennsylvania statutory and constitutional holdings may have limited impact outside the state.
Copyright © 2017 Tax Management Inc. All Rights Reserved.
All Bloomberg BNA treatises are available on standing order, which ensures you will always receive the most current edition of the book or supplement of the title you have ordered from Bloomberg BNA’s book division. As soon as a new supplement or edition is published (usually annually) for a title you’ve previously purchased and requested to be placed on standing order, we’ll ship it to you to review for 30 days without any obligation. During this period, you can either (a) honor the invoice and receive a 5% discount (in addition to any other discounts you may qualify for) off the then-current price of the update, plus shipping and handling or (b) return the book(s), in which case, your invoice will be cancelled upon receipt of the book(s). Call us for a prepaid UPS label for your return. It’s as simple and easy as that. Most importantly, standing orders mean you will never have to worry about the timeliness of the information you’re relying on. And, you may discontinue standing orders at any time by contacting us at 1.800.960.1220 or by sending an email to email@example.com.
Put me on standing order at a 5% discount off list price of all future updates, in addition to any other discounts I may quality for. (Returnable within 30 days.)
Notify me when updates are available (No standing order will be created).
This Bloomberg BNA report is available on standing order, which ensures you will all receive the latest edition. This report is updated annually and we will send you the latest edition once it has been published. By signing up for standing order you will never have to worry about the timeliness of the information you need. And, you may discontinue standing orders at any time by contacting us at 1.800.372.1033, option 5, or by sending us an email to firstname.lastname@example.org.
Put me on standing order
Notify me when new releases are available (no standing order will be created)