Tax & Accounting Blog

Philadelphia Passes Tax on Soft Drinks

Blog, Indirect Tax, ONESOURCE June 17, 2016

Yesterday the Philadelphia City Council voted 13-4 to approve a 1.5% per ounce tax on soft drinks effective January 1, 2017. In a fine example of eponymous legislation the new code section is entitled the Sugar-Sweetened Beverage Tax and applies, as one might expect, to “Sugar Sweetened Beverages.” However the definition section contains a nice tax wrinkle as Sugar Sweetened Beverages are defined to include non-alcoholic beverages that list “any form of artificial sugar substitute” as an ingredient. Chapter § 19-4101 (3)(a)(.2). This expands the breadth of the tax to include both sugar laden beverages as well as low or no calorie ‘diet’ beverages.

Recognizing the breadth of this potential definition the legislation also provides exemptions including baby formula, medical food, and drinks made from at least 50% milk or fruit or vegetables. Chapter § 19-4101 (3)(c). Additionally unsweetened drinks which a purchaser can add sugar to or request a seller add sugar to are exempt. Id. The Department of Revenue is authorized to add regulations to clarify which products are taxable or exempted. The tax applies on wholesale, not final retail transactions, and applies whether collected by the manufacturer or not. § 19-4103(1).

Within the last decade New York City attempted to pass a similar tax unsuccessfully and the city of Berkeley passed a tax on non-diet sodas. Several major cities are scheduled to vote in November on soft drink taxes including San Francisco, Oakland, and Boulder. Philadelphia’s Mayor, Jim Kenney has some advice to those seeking to pass the taxes, “If you want to tax something and people know where the money’s going to go, then it’s easier for them to get behind it.” Previously in Philadelphia and in New York City the focus had been on the health problems caused by sugary drinks. While taxes on Cigarettes and Alcohol have been commonplace, it’s unclear that enough political support exists nationwide to tax soda similarly.