Supreme Court Rules 4-2 in Favor of Beverage Tax

By Kent Franchise Law Group

On January 1, 2017, the City of Philadelphia became the first major U.S. city to impose a tax on sweetened beverages. The City’s new 1.5 cent per ounce tax on distribution of sweetened beverages includes everything from soda to juices, to Gatorade. Local retailers, restaurants, and businesses challenged the tax citing that it was a form of double-taxation because the beverage tax was being passed along to consumers who already pay sales tax on sweetened beverages.

On Wednesday, the Pennsylvania Supreme Court disagreed with the businesses and retailers who oppose the tax and upheld the tax in a 4-2 decision. The Court reasoned that the local beverage tax is permissible because, pursuant to the Sterling Act, localities are allowed to tax anything the state is not already taxing. The Court similarly found that the beverage tax did not violate the Sterling Act since the tax is imposed on distributors and not retail sales where there is state sales tax involved. In his majority opinion, Chief Justice Saylor wrote, “The legal incidences of the Philadelphia tax and the commonwealth’s sales and use tax are different and, accordingly, Sterling Act preemption does not apply.”

Despite the Supreme Court’s major blow to the beverage industry, the fight against the city’s beverage tax is not over yet. There is a bill in the Pennsylvania house that would preempt the beverage tax and stop any other Pennsylvania city from imposing the same tax. Unfortunately the bill does not seem to have the kind of support the beverage industry is hoping for. Danny Grace, secretary-treasurer for Teamsters Local 830, recently stated, “unless proposed state legislation that would preempt municipalities from enacting their own taxes gains some traction in Harrisburg, this is the grim new reality we must accept.”