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Beverage industry sues to block soda tax in Philadelphia

The complainants say the new tax is unconstitutional

Photo (c) fotoatelie - Fotolia
Back in June, Philadelphia became one of the first cities to pass a tax on sugar-sweetened beverages, the funds for which would go towards aiding pre-kindergarten education and other initiatives. However, the proposal did not sit well with small businesses or the beverage industry, and now a lawsuit from these groups will seek to block it.

The American Beverage Association, along with residents and businesses in the Philadelphia area, allege that the new tax is unconstitutional because it duplicates the effects of a 6% sales tax that is already imposed on sugar-sweetened beverages.

“The relevant question is whether the City’s Tax is imposed on the same subject matter, personal property, and/or transaction as a preexisting Commonwealth tax,” stated the complaint, adding that the current tax on soda and soft drinks is “precisely the same subject and property” of a preexisting city tax.


Proponents of the bill say it isn’t unconstitutional because the tax is imposed at the distributor level, not the retail level. Philadelphia Mayor James Kenney, a major backer of the bill, says he’s confident that the moneyed interests of the beverage industry won’t be able to defeat the bill.

“While it is repugnant that the multi-billion-dollar soda industry would try to take away these educational and community programs from the hundreds of thousands of Philadelphians who need them, we were not surprised by their lawsuit given the ten million dollars they have already spent opposing the tax,” he said.

Those against the bill responded to Kelly’s statements saying that they’re not against education, but that the structure of the bill is unsound.

“We are not against pre-K, but it should be funded the right way. As we’ve said throughout, rather than relying on [a] tax based on speculative revenue projections and paid for on the backs of small businesses and low-income families, the city should seek a broad-based solution to sustainably fund these programs,” said Anthony Campisi, member of the advocacy group Philadelphians Against the Grocery Tax Coalition.

Unfairly burdens consumers

Detractors say that the main problem with the bill would be that it unfairly burdens consumers with additional costs, especially those at the low-income level and those who rely on the Supplemental Nutrition Assistance Program (SNAP). The burden will fall to consumers, they say, because businesses will raise prices to offset the extra costs.

“Due to the Tax, a low-income Philadelphia resident making the same purchases he or she had made prior to enactment of the Tax will be able to purchase fewer groceries for the same amount of money than prior to the imposition of the Tax. The grocery bill increase will be dramatic for a SNAP recipient, who bears the entire cost of the Tax on the purchase of a soft drink,” said the complainants.

“Given how great the tax burden is relative to the market price at the retail level and wholesale price at the distribution level for many beverages, it would be economically infeasible for a distributor or retailer to absorb the Tax.”

Gearing up

The new tax is scheduled to go into effect on January 1, and both sides seem to be gearing up for the ensuing legal battle, with neither giving much ground to the other.

“Philadelphia has lots of ways to raise revenue,” said Shanin Specter, the plaintiffs’ attorney. “But this tax on beverages is plainly illegal.”

“We have always been confident that the Sweetened Beverage Tax was a proper exercise of City Council’s authority and that it will be upheld in Court,” countered City Solicitor Pedro Tulante in a statement.

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