Soda Tax Survives

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Tax Policy

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.

Heidi R. Schwartz

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.

Sales Tax Not Duplicated

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.

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