Taxing Sugary Beverages Increasing at the Local Level
The debate over the health impact of sugar has raged for decades, and “sugary beverages” have been singled out by some advocates as negatively affecting America’s obesity epidemic. More recently, policymakers in a handful of localities have attempted to use the tax code to influence consumer behavior and reduce overall consumption of these drinks, according to MultiState Associates.
For example, the price of regular sodas would rise in Seattle under a 2-cent-per-fluid-ounce tax proposed by Mayor Ed Murray, Vending Times reported. The levy would apply only to such sugary beverages as regular sodas, energy and sports drinks, and bottled teas and coffee.
This proposed tax is expected to raise $16 million a year. Proceeds would be used to support educational programs aimed at reducing disparities between white students and minority students. The tariff’s main goal is to reduce consumption of sugary drinks.
In January, Philadelphia became the first major U.S. city to enact a soda tax, at 1.5 cents per ounce. This tax is levied on distributors, not dealers, so the company that distributes the sugary beverages pays the tax, not the retailer itself (although that tax is passed along from the distributor to the dealer). The city plans on using the extra revenue from the sugary beverage tax to pay for school pension plans and teacher salaries.
The idea of taxing sugary beverages is not new. Several states have laws levying specific taxes on the soft drink industry. Virginia, for example, has an excise tax on soft drink wholesalers and distributors based on their total annual sales. Arkansas has taken a slightly different approach, taxing soda companies both based on the number of gallons of syrup they use and the amount of bottled drink that they sell.
Typically, these taxes are levied in addition to any tax that is applied to the retail purchase of these drinks. Other states, such as Colorado, specifically impose sales tax on soft drinks, while most other food items are exempt from the sales tax.
Berkeley, Calif., became the first locality to pass its own tax on sugary beverages in 2014. That year, Berkeley voters approved a ballot measure to impose a 1-cent-per-ounce tax on high-calorie, sugary drinks.
Last year saw a surge of sugary beverage taxes passed on the local level. In November, officials in Illinois’ Cook County (which includes Chicago) passed a 1-cent-per-ounce tax on sugary beverages, and voters in three California cities each passed ballot initiatives enacting 1-cent-per-ounce taxes on sugary beverages: San Francisco, Oakland and Albany. In addition, voters in Boulder, Colo., approved a ballot measure to impose a 2-cent-per-ounce tax “on the first distributor in any chain of distribution of drinks with added sugar and sweeteners used to produce such drinks.”
Elected officials in Baltimore and Santa Fe, N.M., also are beginning to discuss the issue. Santa Fe is exploring a 2-cent-per-ounce tax on sugary beverages to fund early childhood education, while Baltimore wants to add a health warning label on sugary drinks.
Furthermore, state lawmakers are paying attention to their local counterparts – with an uptick in state bills to tax sugary beverages. So far, according to MultiState Associates, lawmakers in seven states have introduced 12 bills to impose such taxes.
Service Tax Proposals on the Rise
Tax on services, or TOS, proposals have become increasingly prevalent in state legislatures across the country over the last few years – and 2017 looks to be no exception. As of January, MultiState Associates anticipated TOS proposals receiving serious debate in 16 states during state sessions. These predictions are driven by four factors, according to MultiState Insider:
- Deteriorating budget pictures in many states and a desire for new revenue sources.
- Changing politics post-election.
- A gradual shift in policy perceptions, with the desire to move away from income taxation and toward consumption taxation.
- States’ past interest in TOS proposals and top lawmakers’ recent statements indicating that TOS is on the table.
There were 30 bills in 19 states dealing with TOS last year. Several bills sought to impose the so-called “fair tax” which seeks generally to replace state income taxes with a broader consumption tax. Other bills aimed to expand the sales tax base either to services generally or a specified list. Finally, a few bills sought to convene a panel of experts to study the issue further. None of these bills were ultimately enacted.
Six states have introduced TOS legislation every year over the last three years – California, Illinois, Missouri, North Carolina, Pennsylvania and South Carolina. Despite all of this activity, no state has enacted and successfully maintained a broad-based TOS in decades.
Five Governors Reveal Tax Policies
Here’s a look at the recent tax proposals from five governors, perhaps providing a peek at where tax policy is headed in 2017:
- During his State of the Commonwealth address, Kentucky Governor Matt Bevin said he wanted to start moving his state toward a taxation model that relied more consumption taxes, rather than income taxes. “[Some tax policies] are going to be returned to the barn as sacred cows, and some of them are going to be turned into hamburger,” he said. While he didn’t offer specifics about this plan, it’s expected that his ultimate plan to include an expansion of the sales tax base to include some services.
- Specifics are still scarce, but Maine Governor Paul LePage is pursuing a plan to cut the personal income tax rate and expand the sales tax base. He has been arguing that these reforms are necessary to mitigate the harm done by the passage of a pair of citizen initiatives last November that raised the minimum wage and levied a higher tax on households with more than $200,000 in income.
- In an effort to resolve her state’s $878 million budget deficit, Oklahoma Governor Mary Fallin has prepared a sweeping tax plan that calls for eliminating the corporate income tax, increasing the tobacco tax, and expanding the sales tax base to include 164 new services, including legal, accounting, real estate, software design. Despite her plan’s income tax cut, Republican legislators have expressed their disapproval for the governor’s proposal, calling it a $1.7 billion tax increase on Oklahoma small businesses and entrepreneurs.
- Pennsylvania Governor Tom Wolf’s executive budget proposal would expand the sales tax to include a set of enumerated services, including business storage, aircraft maintenance, and software and computer services. The governor is billing these changes – along with several other tax provisions – as “closing loopholes” while protecting middle class taxpayers from broad-based tax increases.
- As a part of his budget proposal, West Virginia Governor Jim Justice is calling for an expansion of the sales tax to include services, along with the imposition of a gross receipt tax, a higher sales tax rate, a soda tax, and higher levies for alcohol and tobacco.
Potential Sales Tax Threatens Nebraska Operators
Imagine having to hand over 7.5 percent of your gross sales to your state government – without being able to recoup this tax from your customers.
That’s the dire possibility self-service laundry owners in Nebraska are currently facing.
Like most states, Nebraska exempts vended laundries from collecting sales tax. However, various competing tax reform bills have been introduced to the Nebraska legislature, which would broaden the sales tax base to include presently exempt industries – including self-serve laundry.
In particular, LB452 and LB563 would eliminate the laundry exemption. This could mean that all laundry owners would be required to remit 7.5 percent of their gross sales to the state each year, costing the average store operator approximately $7,500 to $15,000 per year.
As with most states, these bills are aimed at broadening the sales tax base by eliminating all of the exemptions on a wholesale basis – as opposed to singling out laundromats. The net effect is the same, with laundry owners having to pay what amounts to be a gross receipts tax.
The Coin Laundry Association’s legislative monitoring service alerted the association to this threat – and, upon learning that the legislation had gained some momentum, the CLA engaged a lobbyist to protect the sales tax exemption for Nebraska laundry owners. In fact, lobbyists are now reaching out to key committee members and the leadership within the Nebraska legislature to build the case for laundromats to remain exempt from such sales tax.
Interested in helping this important cause?
As self-service laundry owners, there is strength in numbers. The most immediate need is fundraising. Lobbyists require a substantial investment. To all laundry owners who find themselves at risk of being hit with this potentially crippling tax, the CLA is asking for a contribution of at least $500 for each laundry you own. This is a wise investment when you consider that the sales tax will cost the average laundry owner at least $7,500 to $15,000 per year – every year.
To donate, make out a check to the Coin Laundry Association, noting “Nebraska Sales Tax” Or, visit coinlaundry.org/advocacy/stop-laundry-tax to make your contribution via credit card online. Donations of this sort are not tax-deductible.
Laundry Owners Fight Back Against Chicago Water Tax
The city of Chicago has passed a new tax on all users of water and sewer in the city. The first increase of 7.5 percent went into effect on March 1, and the tax will increase over the next four years to 30 percent.
The Illinois Coin Laundry Association, along with a number of other laundry operators, has been working on getting some type of reduction in this tax for self-service laundries. To this end, several CLA members have formed a working group, which has engaged a lobbying firm to help mitigate the impact of this legislation on Chicago-based laundries.
“I can tell you that we’ve made some significant progress and are cautiously optimistic that this effort will pay off,” said ILCLA President Paul Hansen.
The Illinois trade group has already reached out to the following city, state and federal agencies:
- Mayor’s office of Legislative Counsel and Government Affairs
- City Chief Financial Officer Carole Brown
- Metropolitan Water Reclamation District of Greater Chicago
- Illinois Department of Natural Resources
- Peoples Energy
And future meetings will be held with the following individuals and agencies:
- Aldermanic Black Caucus Chair Roderick Sawyer
- Finance Committee Chair Ed Burke
- Budget Committee Chair Carrie Austin
- Chicago Department of Water Management
- Members of the Aldermanic Progressive Caucus
- Members of the Aldermanic Latino Caucus
“We are attacking this problem on a number of fronts, not only trying to get laundries exempt or the tax reduced for us, but also are working with other government agencies on getting grants, subsidies or tax breaks for upgrading to more water-efficient equipment – but we need your help,” Hansen explained. “Again, we are optimistic we can get some kind of relief, but we’re nearly out of funds. As of today, only a handful of owners have donated, and we only have enough to keep going for another month – when we need about three more months to see this through.”
How badly would a 30 percent increase in water costs impact your laundry business? What’s more, this increase is on top of a 30 percent property tax hike, a large jump in the minimum wage, a burdensome sick-time ordinance and a soda tax.
For those interested in contributing to this critical laundry industry cause, checks can be made out to: ILCLA, c/o Joe Frankian, D&M Equipment, 4822 W. Fullerton Ave, Chicago, Ill. 60639 – or funds can be sent through PayPal.
For more information, call Paul Hansen at (773) 436-1994.
Minimum Wage Increases in 19 States
Nineteen states, including New York and California, rang in 2017 with an increase in the minimum wage – with Massachusetts and the state of Washington implementing the highest new minimum wages in the country at $11 per hour.
California raised its wage to $10.50 for businesses with 26 or more employees. New York took a regional approach, with the wage rising to $11 in New York City, to $10.50 for small businesses in the city, $10 in its downstate suburbs and $9.70 elsewhere. Some specific businesses – fast-food restaurants and the smallest New York City businesses – have slightly different wage requirements.
Voters in Arizona, Maine, Colorado and Washington approved increases in last year’s election. Seven other states – Alaska, Florida, Missouri, Montana, New Jersey, Ohio and South Dakota – automatically raised the wages based on indexing. The other states that saw increases are Arkansas, Connecticut, Hawaii, Michigan and Vermont.
Additional increases are slated for later in the year in Oregon, Washington, D.C. and Maryland.
In Arizona, the state Chamber of Commerce and Industry filed a lawsuit challenging the increase, which jumped the minimum wage from $8.05 to $10. However, the Arizona Supreme Court refused to temporarily block the raise.
Workers and labor advocates argue that these increases will help low-wage workers now barely making ends meet and boost the economy by giving some consumers more money to spend. But many business owners opposed the higher wages, saying they will lead to higher prices and greater automation.
The adjustments in New York, California and several other states are part of a series of gradual increases to a $12 or $15 hourly wage.
The minimum wage also went up in 22 cities and counties, including San Diego, San Jose and Seattle.
The high number of states and localities raising the wage this year reflects the work of fast-food workers and organized labor, according to Tsedeye Gebreselassie, senior staff attorney at the National Employment Law Project, as well as federal inaction on the wage.
The national minimum was last raised, to $7.25, in 2009.