Beverage Industry Sues to Block Philadelphia's Sweetened-Drink Tax
September 14 2016 - 4:00PM
Dow Jones News
Beverage companies and retailers on Wednesday sued to try to
halt Philadelphia's special tax on sweetened drinks slated to go
into effect in January.
Philadelphia become the first large U.S. city to pass such a
measure in June, when the city council approved a levy of 1.5 cents
per ounce on non-alcoholic beverages with added sweeteners ranging
from soda to sports drinks and energy drinks.
A civil complaint filed with the Philadelphia County Court of
Common Pleas argues the tax is unlawful because such drinks already
are subject to a state sales tax and that Pennsylvania law
prohibits cities from imposing duplicate taxes.
Plaintiffs include the American Beverage Association, the
Pennsylvania Food Merchants Association, beverage distributors and
two city residents.
City officials have said they are confident they can defeat a
legal challenge in part because the levy is imposed on distributors
and isn't a sales tax. Mayor Jim Kenney championed the tax on
distributors as a way to generate $91 million in annual revenue for
prekindergarten and other city services.
The legal challenge, which had been expected, comes as other
cities weigh special taxes on sugary drinks amid rising concern
over obesity and diabetes rates. Residents in San Francisco,
Oakland, Calif., and Boulder, Colo., will vote in November ballot
initiatives.
Beverage makers like Coca-Cola Co., PepsiCo Inc. and Dr Pepper
Snapple Group Inc. say such taxes are discriminatory by unfairly
singling out products representing less than 10% of caloric intake.
A federal judge put San Francisco's planned health warnings for
sugary drinks on hold in June after the industry argued the
warnings violate its free-speech rights under the First
Amendment.
In Wednesday's 59-page lawsuit, plaintiffs estimated
Philadelphia's tax would raise prices by an average of 31%, leading
to fewer purchases and an annual revenue loss of $2.7 million to
$7.8 million for Pennsylvania because of lower sales tax
receipts.
They argued Philadelphia's special tax could set a precedent
allowing local governments to tax thousands of goods ranging from
over-the-counter drugs to cars, further undermining the state's
tax-collection rights.
Plaintiffs also argued Philadelphia's levy violates the state
constitution requiring uniformity of taxation because the levy is
calculated by volume, not value. They estimated prices on larger,
less-expensive items such as 2-liter soda bottles could more than
double, while smaller energy shots would only have a single-digit
percentage increase.
The complaint also asserts that cities or states are prohibited
from taxing items including sweetened drinks purchased with
federally funded food stamps under the Supplemental Nutrition
Assistance Program, or SNAP. Nearly half a million residents of
Philadelphia, or almost a third of the city's population of 1.6
million, receive SNAP benefits, according to plaintiffs.
Write to Mike Esterl at mike.esterl@wsj.com
(END) Dow Jones Newswires
September 14, 2016 15:45 ET (19:45 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.
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