Philadelphia first major city to tax sweetened beverages

By Andrew Burger | Jul 12, 2016

PHILADELPHIA – Philadelphia recently became the first major U.S. city to enact a tax on sodas and other sweetened beverages.

The new tax levies a $0.015 per fluid ounce charge on beverages and concentrates sweetened with sugar or artificial substitutes, such as aspartame, saccharine and stevia. When passed on to consumers, that's expected to add approximately $0.18 to the cost of a 12-ounce can of soda.

All told, revenues from the sweetened beverage tax are projected to reach nearly $410 million over the next five years. Proceeds will be used primarily to add 6,500 seats to pre-K and 25 community schools, as well as make payments on new debt, the capital from which will be used to renovate and improve city parks, libraries and recreation centers. Another portion is to fund special projects, such as re-sentencing of juveniles and disability settlement payments,

In contrast to similar initiatives in Berkeley, Calif., and New York City, "the Philadelphia sweetened beverage tax is not so much about public health and changing consumer behavior as it is about revenue for the city," Kelley Drye & Warren associate Devon Winkles told the Pennsylvania Record.

¨Philadelphia Mayor Jim Kenney proposed and promoted this tax as a source of revenue for city programs: expanded pre-K, community schools, and improvements to parks, recreation centers, and libraries.¨

Philadelphia's sweetened beverage tax applies to sodas, fruit drinks with less than a specified minimum amount of fruit, sports and energy drinks, sweetened flavored water, presweetened coffee or tea and non-alcoholic beverage mixers.

Excluded are infant formula, medical foods, beverages more than 50 percent milk, those more than 50 percent fresh fruit, vegetables or a combination of both. Also excluded are concentrates that the purchaser can add or request sugar to be added, syrups and other concentrates that the buyer can combine with other ingredients to create a beverage.

In terms of compliance, the burden falls largely on distributors, who will be required to register with the city and make sweetened beverage tax payments on the 15th of each month starting February 15, 2017 for January 15, 2017, Winkles explained. Retailers will be required to meet the legal definition of a "dealer," inform distributors that they are, and make purchases exclusively from registered distributors.

Berkeley is the only other city that has enacted a similar tax, though they have been proposed in a various other cities and states. Previous efforts to enact a sweetened beverage tax in Philadelphia failed to pass, Winkles noted.

Passed on to consumers, will the higher cost of sweetened soft drinks prompt Philadelphians to drink less of them?

"Research has been mixed on whether these types of increases would result in a significant decline in consumption of taxed drinks," Winkles said. "One data point comes from a recent study of a Mexican tax on sugar sweetened beverages, which found that sales of taxed drinks fell 6% in the first year."

Furthermore, Winkles noted that there isn't much evidence regarding the effects taxing sweetened beverages has on public health.

"I would not say that the Philadelphia tax is likely to usher in a wave of similar taxes on beverages...," Winkles said. "Similar proposals have been considered elsewhere, and for the most part they have been rejected.¨

That said, there is a larger trend under way in which regulators are requiring food industry participants to provide consumers with more information about the foods they eat.

"For instance, FDA [Food and Drug Administration] has finalized its rules for nutrition labeling at restaurants and rolled out its new Nutrition Facts panel," Winkles pointed out. "Meanwhile, Congress is considering a uniform national labeling standard for GMO [Genetically Modified Organisms] foods."

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