Beverage Industry Sues Philadelphia to Block Soda Tax

The suit doesn't address whether soda taxes have any effect on obesity or public health, but instead hinges on finer points of Pennsylvania tax law and its constitution.

The American Beverage Association (ABA), along with local affiliates, on Wednesday sued to stop Philadelphia’s new sugary beverage tax from taking effect in 2017, arguing it is unconstitutional.

Philadelphia Mayor Jim Kenney vowed to fight the suit in court, calling it “repugnant” for the “multibillion soda industry” to try to overturn a tax projected to raise $92 million for education and community programs, including expanded prekindergarten.

The 1.5-cent per ounce tax on most sugar-sweetened beverages and some diet drinks was revamped from its original design before the Philadelphia City Council approved it in June. The ABA vowed immediately to take legal action, and the suit seeks an injunction before tax collections begin.

“We are ready and prepared to vigorously defend this legislation and to protect the historic investment planned for Philadelphia’s neighborhoods and education system,” said City Solicitor Sozi Pedro Tulante.

Health advocates have praised taxes on sugar-sweetened beverages as a way to halt rising rates of diabetes and obesity, especially in children. But passing them has been an uphill battle, with the soda industry fighting hard to block them. In Philadelphia, the ABA fought the tax directly and through a group it funded, the No Philly Grocery Tax Coalition.

Beverage interests defeated a measure in San Francisco in 2014, the same year one passed in Berkeley, California. Research published in August in the American Journal of Public Health showed a 21% drop in drinking soda and other sugary beverages in Berkeley’s low-income neighborhoods after the tax took effect.

Nancy Brown, CEO for the American Heart Association, said the group was "disappointed" by the industry's decision to fight the tax, even though it was expected. "We are encouraged by evidence from Mexico and Berkeley, California, that demonstrates that consumption of sugary drinks declines as the tax on them is increased. Results last month from Berkeley showed that sugary drink taxes actually motivated people to drink fewer sugary drinks and more water in the first year.

"The American Heart Association will continue to advocate aggressively for policy measures to make heart-healthy living easier in all communities," Brown said, citing campaigns elsewhere in California, in Colorado, in Alabama, and in Illinois.

The Philadelphia lawsuit, filed by Shanin Specter, son of Pennsylvania’s late US Senator, Arlen Specter, doesn’t get into discussions about obesity or whether taxes would affect public health. Rather, it hinges largely on Pennsylvania tax law and its constitution, saying the city’s measure treads in an area where the commonwealth has exclusive rights to raise revenue, namely the Pennsylvania Soft Drink Tax.

Allowing Philadelphia’s beverage tax to stand, the suit argues, would open the door for municipalities across the commonwealth to tax other items that are already subject to sales taxes. And, the suit further argues, if a city tax on sugary beverages causes sales of those items to wither, Pennsylvania is deprived of revenue, which an expert estimates will be $2.7 million to $7.8 million.

Additionally, the suit argues that the tax cannot be evenly collected, that it puts a hardship on small businesses (including 2 who joined the suit), and that “the burden of the tax is borne by consumers in unreasonably disparate ways.”

A novel part of the complaint features litigants who are recipients of the Supplemental Nutrition Assistance Program (SNAP). The suit alleges that the tax, which is levied at the distributor level, violates federal rules that bar taxes on foods and drinks purchased with SNAP. Assuming distributors or retailers pass along the city’s measure in the form of higher prices to the consumer, the tax "sharply reduces the purchasing power of SNAP participants," according to the complaint.

The suit was filed in the Philadelphia County Court of Common Pleas and in the Pennsylvania Supreme Court.