On September 8, 2016, the City of Philadelphia issued proposed regulations on a new Sugar-Sweetened Beverage Tax. This tax is on any non-alcoholic beverage, syrup, or other concentrate used to prepare a beverage that lists as an ingredient any form of caloric sugar-based sweetener as well as any form of artificial sugar substitute.
Cost of the “Soda Tax”
Starting January 1, 2017, the City of Philadelphia will impose a 1.5 cents per ounce tax on the supply of sweetened beverages to retail dealers. The tax will be due on the 20th of each month for the prior month. The first payment will be due February 20, 2017 for distribution activity in January 2017. Registration for the tax will be available online beginning in November 2016.
The tax is paid by the distributors of sweetened beverages. A distributor is any person who sells sweetened beverages to a dealer. A dealer is any person who sells sweetened beverages at retail, for example, delis, restaurants or grocery stores. If distributors and dealers pass the entire tax on to consumers, a six-pack of 16-ounce bottles would go up by $1.44.
Philadelphia Mayor Jim Kenney estimates the tax will result in $386 million over the next five years. Some of the money will be used for pre-kindergarten programs and community schools and improvements to parks, recreation centers and libraries.
Responsibility of Retailers
A dealer will be required to buy the products from a registered distributor or register and pay the tax directly to the City of Philadelphia. Dealers must notify their distributors that the sweetened beverages they are selling will be subject to the tax. The notification is required even if their distributors are located outside of Philadelphia. Failure to notify distributors of their tax liability will result in the dealer being subject to paying the tax.
While concentrates or syrups are taxed in addition to sweetened beverages, their tax rate is based on the amount of final beverage produced, not the raw syrup or concentrate.
There are some exemptions from the tax. The tax does not apply to the following:
- Baby formula
- Products that are more than 50% milk
- Beverages that meet the definition of medical foods
- Any product that is more than 50% fresh fruit or vegetable juice
- Unsweetened drinks, such as coffee, that the purchaser or seller can add sugar to at the point of sale
- Any syrup or concentrate that the purchaser adds or can request the seller add to a drink