Philadelphia Enacts Soda Tax

Philadelphia Enacts Soda Tax
June 21, 2016

Summary
On June 16, 2016, the Philadelphia City Council passed Bill No. 160176, known colloquially as the “Soda Tax.” This ordinance imposes a tax of 1.5 cents per ounce on any sugar- or artificially-sweetened beverage sold in the City of Philadelphia, beginning January 1, 2017. The tax is also imposed on sales of syrups and other concentrates at a rate equivalent to 1.5 cents per ounce of a prepared drink made from that syrup or concentrate. The tax will affect distributors, retailers and consumers.

What Does the Tax Cover and Who Pays the Tax?

The tax is imposed primarily on Distributors who sell, supply or deliver sodas, diet sodas, sweetened fruit juices, sports drinks, and other sweetened or artificially sweetened beverages to “Dealers” engaged in the business of selling the beverages at retail in the City. The term “Dealer” includes convenience stores, grocery stores, restaurants, street vendors, and any other retailer of pre-made drinks. The tax does not apply to (i) unsweetened bottled water, (ii) freshly made coffee, tea or other unsweetened drinks to which the purchaser can separately add sugar, (iii) any product, more than 50% of which, by volume, is fresh fruit, vegetables or a combination of the two, (iv) any product, more than 50% of which, by volume, is milk, (v) baby formula, (vi) beverages that are treated as “medical food” under the federal Orphan Drug Act, or (vii) syrups or concentrates that a consumer himself or herself combines with other ingredients to create a beverage.

The tax is imposed on any Distributor who sells, supplies or delivers any taxable beverages to a Dealer who intends to sell the beverages at retail in the City.  A Distributor of taxable beverages must register with the City of Philadelphia, and each Dealer purchasing beverages for retail in the City must notify the Distributor that the Dealer is subject to Soda Tax.  When the Distributor supplies the beverages to the Dealer, the Distributor must provide the Dealer a receipt detailing the number of ounces of beverage sold subject to the tax and the amount of tax owing on the sale.  The tax is imposed on the Distributor, but we anticipate that the full amount of the tax will be reflected in the price charged the Dealer (and ultimately, the consumers). Dealers that elect to purchase taxable beverages from any person that is not a registered Distributor, or that fail to receive the proper paperwork from the Distributor, must register with the City as if they were Distributors, and file and pay the tax themselves, or face stiff penalties.

We anticipate that the burden of the new Soda Tax will ultimately be paid by consumers in the form of higher prices.  Most (but not all) beverages that are subject to the Soda Tax also are subject to the Pennsylvania Sales and Use tax, so these higher prices will increase the sales tax base of the beverages subject to both taxes. 

Compliance Issues

Beginning January 1, 2017, both Distributors and Dealers will need to comply with the new Soda Tax. Each Distributor must register with the City of Philadelphia, provide receipts to Dealers with each taxable sale of beverages, and pay the tax to the City. To legally sell taxable beverages at retail in the City, and to avoid imposition of tax and penalties, a Dealer must either: (1)purchase the taxable beverages from a registered Distributor, supply the requisite notices to the Distributor, and receive from the Distributor confirmation that the Distributor is registered and has received the Dealer’s notification, all in forms to be prescribed by the Department of Revenue, or (2) register with the City as if it were a Distributor and agree to assume all of the obligations of a Distributor.  Businesses that fail to comply with the ordinance may risk losing their commercial activity licenses in Philadelphia.

For the full language of the ordinance, click here.

If you are interested in learning more about whether your business is affected by the Soda Tax, please contact the authors or the attorney at the firm with whom you are regularly in contact.

 

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