On July 18, 2018, the Pennsylvania Supreme Court ruled in a 4-2 decision to uphold Philadelphia's soda tax. The tax, at a rate of 1.5 cents per ounce, is collected by distributors of sugar- and artificially-sweetened beverages and imposed on retailers ("dealers," under the ordinance). The decision could have a major impact in Philadelphia as the city looks for new sources of revenue to pay for its services and other obligations.

At issue in this case is the Sterling Act, which grants Philadelphia the authority to levy additional taxes within its borders so long as those taxes do not overlap with already imposed Commonwealth-level taxes and license fees. The Court held that the soda tax ordinance avoids running afoul of the Sterling Act by imposing a tax on dealers of retail beverages rather than the end users, who are subject to the Commonwealth’s sales and use tax. Although the economic effect is the same (beverage prices in the city have gone up), the legal obligation to pay the tax is on the retailer, not the customer, which enabled the ordinance to survive the legal challenge.

This ruling has the potential to open up plenty of additional revenue streams for Philadelphia if it chooses to impose dealer level taxes on other types of consumer goods. However, legislation was drafted in Harrisburg during the summer to preclude Philadelphia from imposing taxes on the supply, acquisition, delivery, distribution or transport of food and beverages and containers. The legislature suggests it intends to put the bill to a vote in the fall. As of now, Philadelphia’s soda tax remains the law.