Summary

On Thursday, June 16, 2016, the Philadelphia City Council passed Bill No. 16017601, known colloquially as the “Soda Tax.” This ordinance imposes a tax of 1.5 cents per ounce on any sugar- or artificially-sweetened beverage sold in the City of Philadelphia, beginning January 1, 2017. The tax is also imposed on sales of syrups at a rate equivalent to 1.5 cents per ounce of a prepared drink made from that syrup. The tax will affect retailers, distributors and consumers.

What Does the Tax Cover and Who Pays the Tax?

The tax is imposed on retailers of sodas, diet sodas, sweetened fruit juices, sports drinks, and other sweetened or artificially sweetened beverages. This includes convenience stores, grocery stores, restaurants, street vendors, and any other retailer of pre-made drinks. The tax does not apply to unflavored bottled water, freshly made coffee or tea, milk and baby formula.

While retailers are responsible for paying the tax, distributors are responsible for collecting the tax and remitting it to the City of Philadelphia Revenue Department. Distributors must apply for a registration certificate with the City of Philadelphia, and present this certificate to any of their customers located in the city, along with an invoice stating the number of ounces of beverage sold subject to the tax, and a separately stated amount of tax due corresponding to the sale.

While not stated in the ordinance, the reality is that consumers will ultimately pay the tax through retailers passing on the added costs to their customers. Consumers can expect to pay additional sales tax on top of the soda tax, since the price increase will be reflected in the sales tax base.

Compliance Issues

Both retailers and distributors should be concerned about complying with the new tax regime in Philadelphia. Distributors must complete an application to be considered registered distributors, which qualifies them to sell soda in Philadelphia. After the Soda Tax takes effect, retailers must purchase soda only from registered distributors, and must provide registered distributors with a copy of the retailer’s sale-for-resale exemption certificate. Businesses who fail to comply with the ordinance may risk losing their commercial activity licenses in Philadelphia.

For the full language of the ordinance, click here.