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Pennsylvania Supreme Court Hears Philly Soda Tax Dispute
Pennsylvania Ag Connection - 05/17/2018

The fate of Philadelphia's 1.5-cent per ounce tax on sweetened beverages lies in the hands of Pennsylvania's Supreme Court after it heard arguments this week on whether the city's tax violates the state's Sterling Act, a statute that prevents local governments from levying sales tax on goods already taxed by the state. After generating more than two years of noisy protests, the tax prompted few questions from the court's seven justices, who focused their questions on how the tax differs from the state's existing 6 percent tax on retail sales.

A coalition of business owners, retailers, and industry groups sued to stop the tax, which went into effect January 1, 2017. Led by the American Beverage Association, which represents beverage makers such as Coca-Cola Co. and PepsiCo Inc., the coalition is appealing Pennsylvania's Commonwealth Court's June 2017 decision to uphold the tax.

The case has the potential to eliminate the tax, which has been under fire since Philadelphia Mayor Jim Kenney (D) first pitched the idea more than two years ago. When the Philadelphia City Council passed the tax in June 2016, Philadelphia became the nation's first major city to tax sweetened beverages. An increasing number of jurisdictions have since adopted similar taxes on soda, including Seattle and San Francisco.

Opponents of the tax say it's illegal and hurts local businesses. Supporters of the tax say Philadelphia has the right to levy it, and it brings in desperately needed revenue for parks, libraries, and recreation centers. More than a dozen friend-of-the-court briefs, both for and against, have been filed in the case.

The case represents the first time in 50 years that the court has been asked to apply the Sterling Act, Sonnenfeld said.

Sweetened beverages are already subject to the state's 6 percent sales and usage tax on beverages, and Philadelphia hasn't gotten any special permission from the Legislature to tax beverages, so the Sterling Act preempts it, the lawmakers' brief said.

If upheld, the tax could become "the blueprint" for similar local taxes "that could disrupt and distort beverage and other product markets throughout Pennsylvania," a coalition of business associations,including the National Federation of Independent Small Businesses, the Pennsylvania Chamber of Business and Industry, and the Pennsylvania Restaurant and Lodging Association, said in a friend-of-the-court brief.

The city's soda tax is different from Pennsylvania's tax on soda in "both practical and legally significant ways" and isn't duplicative, the International Municipal Lawyers Association, an association of attorneys representing cities, counties, and municipalities, argued in its brief.

"The Sterling Act was intended to enable Philadelphia to raise additional revenue and to provide the City with the freedom to craft its own tax laws and its own tax policies," the brief said. The Philadelphia beverage tax "is a modern revenue-generating tax that fits squarely within the autonomous taxing power granted to Philadelphia through the Sterling Act."

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