The last few years have seen a war waged on sugar. In addition to increased media attention, USDA and the Department of Health and Human Services have set recommended sugar consumption limits. In the latest Dietary Guidelines For Americans 2015-2020, one of the five “guidelines” is to limit calories from added sugars. FDA also has new recommendations on consumption of sugar, reflected in draft guidance issued January 2017.

In addition to USDA and FDA’s guidance, other groups, such as the American Heart Association, are supporting policies that help lower the intake of sugar-sweetened beverages by the American public. One such policy is to tax drinks and food sweetened with sugar. In November 2014, 75% of voters in Berkeley, California approved a tax of 1 cent per ounce on sugar-sweetened beverages, which is said to have generated more than $2.5 million for use in community nutrition and health efforts. Consumption of sugar-sweetened beverages is also reported to be down by 20%.

In June 2016, the City of Philadelphia, Pennsylvania also instituted a sugar tax, levying a 1.5 cent per ounce tax on the “distribution” of sweetened beverages. The tax was immediately challenged, upheld by the trial court, and went into effect on January 1, 2017. A direct appeal to the Pennsylvania Supreme Court was denied, and on Wednesday a Pennsylvania appeals court upheld the tax, again rejecting arguments that the levy was duplicating the state’s sales tax.

The challengers argued that the tax was an impermissible sales tax that violated the state constitution because it was based on volume instead of a set percentage, making the tax 6 to 78%, depending on the size of the drink. Challengers also argued that by imposing its levy on distributors and dealers, it was an attempt to go around the state’s Sterling Act, allowing the city to impose taxes only on subjects not already taxed by the state. Such a levy, they argued, would likely be passed along to consumers, making it nothing more than a sales tax in disguise.

The Court of Appeals disagreed, finding “the subject matter of the tax, the nonretail 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.” One judge dissented, finding the tax too closely linked to retail sales. “While I acknowledge that the [beverage tax] does not appear to be duplicative of the sales tax because it is not explicitly labeled a retail sales tax, the majority ignores that the [beverage tax] is only triggered when there is a retail sale involved.” Another appeal is expected.

Importantly, during the first month of the tax, estimates of the amount of money brought in totaled $5.7 million. To date, the tax has brought in up to $25.6 million. The City of Philadelphia has launched a “comprehensive monitoring campaign” to ensure compliance, including recently adding 10 additional enforcement staff. The tax is intended to primarily fund a pre-K program and a city-wide rebuilding of parks and recreation centers.

It will be interesting to watch the progression of sugar taxes to determine whether such measures, in addition to furthering the public policy goals shared by the American Heart Association, will become a viable income source for cash-strapped cities.

Photo Credit: Michael Allen Smith