Updating our blog postss of March 29, July 7 and December 26 of 2016, an appeal to the Commonwealth Court of Pennsylvania seeking to invalidate the Philadelphia Beverage Tax on Sugar Sweetened Beverages (the “PBT”) failed.  In a majority opinion filed on June 14, 2017, Judge Michael Wojcik, joined by 5 of the 7 judges hearing the appeal, affirmed the judgement of the Philadelphia County Court of Common Pleas that the tax is constitutional and consequently agreed that an injunction against the tax was properly denied.

Those opposing the PBT, known in the opinion as the “Objectors”, raised two significant challenges. First, they argued on several levels that the PBT is an illegal city-imposed sales tax. Under both federal and state law, municipal governments cannot impose unauthorized retail sales taxes. Here, the Objectors claimed that the PBT is a retail sales tax. The Commonwealth Court rejected this argument. The Court found that the PBT is not a retail tax but instead an excise tax on distribution of sugary beverages. This conclusion is based upon the fact that the PBT is imposed not upon end purchasers who consume the beverages but distributors or dealers. Such excise taxes, the Court held, do not run afoul of state or federal preemption law.

The second argument was that the PBT is an unconstitutional property tax because it was imposed on a quantity and not an ad valorem (value) basis. The Commonwealth Court quickly dispensed with this argument because the Court had already concluded that the PBT is an excise, not a property, tax. Consequently, the PBT could constitutionally be imposed on a quantity basis.

The dissenting opinion focused on the fact that the Objectors’ appeal arose after preliminary objections (what are often referred to as grounds for a motion to dismiss in other jurisdictions) had been denied. Because the standard for preliminary objections in Pennsylvania is that the Objectors’ complaint must be “free from doubt”, the dissent would have allowed the case to proceed before the county court in Philadelphia. The dissent reasoned that payment of the PBT is triggered in relation to retail sales, so perhaps the Objectors could develop an argument against it. That said, even the dissent allowed that the PBT did not appear to be unconstitutionally duplicative of a sales tax.

This Commonwealth Court decision places the PBT on very strong footing. Unless the Pennsylvania Supreme Court accepts an appeal, the PBT is likely here to stay.

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