There is a relatively new tax that was implemented in Philadelphia, Pennsylvania that took effect as of January 1, 2017. It places a tax on all sweetened beverages that contain either added sugar or artificial sugar substitutes and is more commonly known simply as the “soda tax.” Distributors of these drinks pay an extra 1.5 cents per each ounce of beverage and pass on the extra cost to retailers who sell the drinks. The retailers then pass on the additional cost to customers who buy the sweetened beverages.
The New Tax Law is Riddled with Controversy
City officials state that the new Philadelphia sweetened beverage tax is to raise money to go toward children’s education. The mayor has explained that the tax is meant to help to get Philadelphia citizens out of poverty. The original purpose of this tax was to fund community school and preschools, as well as rebuild parks and community centers throughout the city.
Individuals who support the tax believe that sweetened drinks are unhealthy and have directly contributed to health problems such as diabetes and obesity. They have also expressed hope that the tax will encourage people to buy healthier drinks for their children and themselves.
Others who oppose the beverage tax claim that it has hurt local businesses and that sales of drinks have declined at their establishments. They also state that it hurts consumers because they have to pay a double tax on sweetened drinks because the beverages already carry a tax. Union leaders who represent beverage bottler companies and drivers have even reported that employees are losing their jobs as a result as well.
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How Does the Soda Tax Hurt Consumers?
Consumers don’t actually pay directly for the soda tax. However, at the same time, they are required to pay for sweetened beverages at higher prices because the tax on distributors is passed down to them. This additional cost can be quite considerable for consumers. For instance, if a customer wanted to purchase an eight pack of sweetened sports drinks, it would cost them $5.99 without the tax. However, after the soda tax is factored in, the price of the pack of drinks would come to $8.39, which is a considerable difference.
Many consumers from Philadelphia have expressed their displeasure with the new tax by shopping for their sweetened drinks elsewhere. Those who have cars have driven to the suburbs to do their beverage shopping because the tax doesn’t exist in those areas. This has also resulted in the customers doing their grocery shopping in the suburbs as well, which has led to stores in Philadelphia losing a lot of business.
Of course, the most unfortunate aspect of the soda tax is that it has been the biggest burden on individuals who are least able to afford it. People with low incomes are less likely to have cars and therefore, they cannot travel to nearby suburbs to buy their sweetened drinks. As a result, they are stuck with having to buy them within Philadelphia and pay the tax.
How Does the New Tax Affect Businesses?
The soda tax has definitely hurt businesses in Philadelphia as the number of sweetened beverage sold has considerably decreased. Those that have taken the biggest hit in sales are mom and pop stores. In fact, all areas of the beverage business have seen a decrease in income in Philadelphia, resulting in many jobs being lost.
Philadelphia’s Projections of Soda Tax Were Wrong
Philadelphia officials who created the soda tax believed it would bring in more money so that the government could use it toward education and improving community centers. Those projections were sadly wrong because the tax brought in less money than they expected. It also created a larger problem because city officials had already distributed revenue they expected to earn from the city’s budget. As a result, the budget is short.
Legal Challenges to the Tax
So far, there have been two rulings in favor of the soda tax. One was at the Pennsylvania Commonwealth Court and the other was at the Philadelphia County Court of Common Pleas. Both courts made the ruling that the tax was legal.
However, the beverage industry was not happy about the ruling. On July 13, 2017, the American Beverage Association filed a petition with the Pennsylvania Supreme Court to appeal the Commonwealth Court’s decision. The Supreme Court’s decision will have a far-reaching effect on the rest of the country because other cities may be looking to follow Philadelphia with the soda tax.
About Karl Heideck
Karl Heideck is a contract attorney who has been listed by the Hire Counsel of Mestel and Company since April 2015. Prior to that, he practiced law in and throughout the greater Philadelphia area for over 10 years. Before he entered the practice, Mr. Heideck graduated from Temple University’s James E. Beasley School of Law with a Juris Doctor in 2009. Karl Heideck’s legal specialties include risk management advisement, commercial litigation, corporate law and product liability. He honed his litigation skills working at Conrad O’Brien and Pepper Hamilton LLP. Mr. Heideck has a great love for writing and is known for helping the community, especially in the small business sector.