Appeals court upholds Philadelphia's tax on sweetened drinks

An appeals court on Wednesday upheld Philadelphia's 1.5-cent-per-ounce tax on sweetened beverages, saying it does not duplicate Pennsylvania's state sales tax.

Under Pennsylvania law, cities cannot tax transactions, subjects or property that are already taxed by the state. Restaurants, beverage distributors and others in the industry had sued the city, claiming its new tax violated that prohibition.

Commonwealth Court's 5-to-2 decision said the beverage tax, imposed on distributors, does not hit the same subject or people as the sales tax. The court backed a decision by a city judge in December.

The levy, the majority said, "taxes non-retail distribution transactions and not retail sale to a consumer," and it merely has the same related subjects as the sales tax.

A lawyer for those who sued over the tax said they will appeal the decision.

Philadelphia Mayor Jim Kenney said the two court decisions indicate the tax, which is being earmarked to fund education in the city, is legal.

"The beverage industry needs to see this ruling for what it is — a clear statement Philadelphia has the right to try to provide for its own — and cease the legal and public relations battle to which it has devoted millions," Kenney said in a statement. "The beverage industry should not ask our children to wait another minute."

Kenney, a Democrat, has said he plans to spend most of the money on pre-kindergarten, community schools and recreation centers.

A two-judge dissent said the ordinance that provided for the beverage tax duplicates the sales tax because it can only be imposed "in relation to the retail sale of sugar-sweetened beverages."

"The majority ignores that the (beverage tax) is only triggered when there is a retail sale involved," wrote Judge Anne Covey.

If fully passed on to consumers, the tax amounts to $1.44 on a six-pack of 16-ounce bottles. Many city stores have signs posted with sugar-sweetened drinks noting that the sticker price includes the extra levy.

City officials said recently the tax has brought in more than $25 million since taking effect in January, but will likely fall short of projected revenues of $46 million for the fiscal year that will end June 30. They remain optimistic, however, that the tax will reap its projected $92 million in the next fiscal year.