Cook County, Illinois lawmakers recently voted to repeal the nation’s largest soda tax only two months after it went live (the repeal scheduled to be effective at the end of Cook County’s fiscal year – November 30, 2017). And this is on the heels of a soda tax defeat in May of this year in Santa Fe, New Mexico, where voters rejected a local soda tax measure by a significant margin. All of this hostility to the soda tax reached a crescendo in Michigan, where the legislature approved a bill to preemptively ban local governments from levying excise taxes on food, in response to the national trend of taxing sweetened beverages. Michigan bill H.B. 4999 cleared the Senate on October 12, 2017 with a 30-5 vote, after passing the House on October 5, 2017. Specifically, the bill prevents localities from imposing taxes or fees on the sale, manufacture, or distribution of food, including beverages and chewing gum.
How did we get here? While the first U.S. soda tax, which was passed in 2014 and remains in effect today, belongs to Berkeley, California the movement gained national attention when former NYC mayor Michael Bloomberg launched a campaign for a soda tax in NYC. That effort was blocked by a New York state judge, but that has not stopped Bloomberg’s public support of soda taxes generally. Indeed, Bloomberg was a vocal supporter of the Cook County soda tax, as well as the recently-passed Philadelphia soda tax, but any momentum he may have built seems to be slowly waning. The most recent word from Philadelphia is that a pair of local politicians spoke against the city’s sweetened beverage tax in a Pennsylvania Senate hearing on October 17, 2017, and the city is facing increased pressure to repeal the newly-enacted soda tax.
What has caused the slow down in momentum? A few years ago soda taxes were viewed as an easy solution to growing budget gaps and the spreading obesity epidemic. But the excitement may have blurred the obvious downside: a soda tax is a highly regressive tax, placing the largest burden on those with the fewest resources. Also, local rules often impact the tax revenue projections associated with a soda tax. For example, in Cook County, budget projections were inflated because the legislature did not take into consideration the fact that it was against the law to tax transactions involving federal nutrition benefits, thereby exempting more than 870,000 Cook County residents from paying the tax.
Where do we go from here? Even though the tax’s momentum has slowed, shortfalls in the budgets of state and local jurisdictions will continue to encourage such jurisdictions to look to new taxes to increase revenue, such as the soda tax. It is not inconceivable to see more jurisdictions dip their toe in the soda tax water. However, it is also possible that previously-passed soda taxes, such as Philadelphia’s soda tax, that are facing increased scrutiny could be repealed.
Taxpayers in jurisdictions where these soda taxes are being considered or are in legislation should monitor these developments and prepare for any implementation. As shown by the Cook County tax, taxpayers and the local government face several difficulties with the enactment of a soda tax, i.e., what products are to be taxed, how is the tax actually calculated, who is the incidence of the tax on, and how must a taxpayer’s point of sale system change to implement such a tax.
We will continue to monitor this shifting landscape and help our clients deal with such taxes.