United States

Pennsylvania: Commonwealth Court Holds that Philadelphia Soda Tax is Valid

Jun 19, 2017
From KPMG TaxWatch

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Recently, the Pennsylvania Commonwealth Court upheld the validity of the Philadelphia Beverage Tax (PBT), which was adopted in June 2016 and became effective January 1, 2017. The PBT ordinance imposes a 1.5 cent per fluid ounce tax on non-alcoholic beverages that contain as an ingredient any form of caloric sugar-based sweetener or any form of artificial sugar substitute. The tax is also imposed on syrup or concentrates that result in such sugar-sweetened beverages (per 1.5 cents per fluid ounce of the resulting beverage). The PBT is generally payable by a distributor upon sales to dealers that are selling the beverages at retail within the City. In September 2016, a group of Objectors filed a complaint alleging that the City had no authority to enact the PBT, that the imposition of the PBT was preempted by several other authorities, and that the tax violated the Pennsylvania Constitution’s Uniformity Clause. After the trial court ruled in favor of the City on the issues, the Objectors appealed.

The Objectors’ first argument was that the City was not empowered to enact the PBT under the Sterling Act, which generally provides that if a product or service is taxed by the state, the tax may not be duplicated by a locality. The basis for this position was that because soda and other sugary beverages are subject to state retail sales tax, they could not be taxed again by the City under the PBT ordinance. The court held that the trial court did not err when it rejected this argument. In its reasoning, the court held that the PBT, which is imposed on distributors, is structured and operates differently than the retail sales tax. Furthermore, the legal incidence of the tax is not the same as the sales tax and the measure of the tax (cents per ounce as opposed to a percent of retail price) is different. As a result, the PBT is not duplicative of the sales tax and does not run afoul of the Sterling Act. The court next held that because the PBT is imposed on distributors and not at retail, the PBT is not preempted by the federal Food Stamp Act or the Pennsylvania tax statute that precludes the imposition of tax on items purchased at retail with food stamps. Finally, the court addressed the Objectors’ argument that the PBT violated the Uniformity Clause. This position was based on the premise that the PBT is a property tax. The PBT, the court observed, is imposed only if the beverages are supplied, acquired, delivered, or transported for purposes of holding them out for retail sale in the City and is imposed at a rate per fluid ounce. Thus, the court concluded the PBT was not a property tax and the Uniformity Clause argument was without merit.

Interestingly, on June 5, 2017, the Seattle City Council approved an ordinance to tax beverages containing “added caloric sweeteners” at a rate of 1.75 cents per fluid ounce. Please contact Howard Sklaroff at (267) 256-2891 with questions on the PBT decision.


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The following information is not intended to be "written advice concerning one or more federal tax matters" subject to the requirements of section 10.37(a)(2) of Treasury Department Circular 230.

The information contained herein is of a general nature and based on authorities that are subject to change. Applicability of the information to specific situations should be determined through consultation with your tax adviser.