On June 14, 2017, the Pennsylvania Commonwealth Court (court), in an en banc 5-to-2 ruling, affirmed the December 19, 2016 decision of the Philadelphia County Court of Common Pleas, which upheld the validity of the Philadelphia Sugar Sweetened Beverage Tax (Soda Tax).¹ In rejecting the challengers' argument that the tax is a legally impermissible duplication of the state's sales tax, the court concluded that "[t]he subject matter of the tax, the non-retail distribution of sugar-sweetened beverages for sale at retail in the city, and the measure of the tax, per ounce of sugar-sweetened beverage, are distinct from the sales tax imposed under the tax code upon the retail sale of the sugar-sweetened beverage to the ultimate purchaser." The court concurred with the trial court's opinion that "[t]he respective taxes apply to two different transactions, have two different measures and are paid by different taxpayers."

The Soda Tax was enacted in June 2016 by Philadelphia and took effect January 1, 2017. The tax is due monthly and is imposed at a rate of 1.5 cents per fluid ounce of qualifying product to be sold at retail within Philadelphia. The tax is imposed on distributors on the sale of qualifying beverages to dealers that will hold it out for sale in the City of Philadelphia. If a dealer cannot prove the distributor from whom it purchased the product is registered with the city and remitted the tax on the product being held for sale at retail, the tax burden falls on the dealer.

The tax applies broadly to the sale of any non-alcoholic beverage that lists as an ingredient any form of caloric sugar-based sweetener (including, sucrose, glucose or high fructose corn syrup) or any form of artificial sugar substitute (including, stevia, aspartame, acesulfame potassium, sucralose and saccharin). It also applies to any a beverage that contains any syrup or concentrate listing such sweeteners as an ingredient.

The plaintiffs, which included the American Beverage Association, filed their original lawsuit challenging the validity of the tax in September 2016 in the Philadelphia County Court of Common Pleas. In addition to arguing that the tax is duplicative of the state's sales tax, the challengers also argued that the tax conflicts with the federal Food Stamps Act and violates the Uniformity Clause of the Pennsylvania Constitution.

On December 19, 2016, Judge Gary Glazer of the Court of Common Pleas issued a decision upholding the tax. While the case was pending on appeal, the City has continued to enforce the collection of the tax.

Implications

Since its implementation, the tax has brought in nearly $16 million, according to the City. It is likely that the challengers will seek review by the Pennsylvania Supreme Court in light of the court's decision. In the meantime, both distributors and retailers should ensure their books and records are audit-ready as the City continues to enforce the tax while litigation is ongoing and has recently stepped up enforcement efforts.

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ENDNOTES

¹ Philadelphia Beverage Association, et al v. City of Philadelphia, Nos. 2077 C.D. 2016 and 2078 C.D. 2016 (Pa. Common. Ct. June 14, 2017).