After leading the nation in local soda taxes, California bans them – Wacky Tax Wednesday

After leading the nation in local soda taxes, California bans them – Wacky Tax Wednesday

In its ongoing battle to prevent the spread of soda taxes, the American Beverage Association (ABA) took California to the mat and won a temporary moratorium on new local taxes on sweetened beverages.

California Assembly Bill 1838, enacted late last month, prohibits the local taxation of groceries through 2030. It’s entitled the Keep Groceries Affordable Act of 2018; a more apt title might be the “Keep Soda Tax Free Act.”

Berkeley was one of the first cities in the nation to impose a special tax on sweetened beverages. Since it did so in January 2015, three other cities have followed its lead:

The soda industry fought the above taxes with vigor and was able to stop San Francisco’s first attempt to tax sugary drinks. But with the success of these four cities and four more looking to follow their lead, the ABA brought out the big guns.

In his June 28, 2018, signing message to the California State Assembly, Governor Edmund G. Brown explained: “Out of 482 cities in the state of California, a total of 4 cities are considering passing a soda tax to combat the dangerous and ill effects of too much sugar in the diets of children. In response, the beverage industry has circulated a far-reaching initiative that would, if passed, raise the approval threshold from 50% to two-thirds on all measures, on all topics in all 482 cities.”

The ABA didn’t stop there: Gov. Brown’s message continued: “The initiative also contains language that would restrict the normal regulatory capacity of the state by imposing a two-thirds legislative vote on what is now solely within the competency of state agencies. This would be an abomination.”

Whether they’re for or against taxing soda and other sweetened beverages, many local and state politicians in California were in favor of AB 1838. It represents a compromise: It doesn’t permanently prohibit soda taxes, but it does take them off the table for many years. This was enough for business and labor interests to back off their efforts to interfere in California’s legislative process.

Under the measure, the California Department of Tax and Fee Administration may not administer any taxes or fees on qualifying groceries imposed by a local agency after January 1, 2018. Any such taxes imposed prior to that date remain in effect. San Francisco’s tax squeezes in just under the deadline.

The bill specifies that “groceries” don’t include alcoholic beverages, cannabis products, cigarettes (including electronic cigarettes), and tobacco products, meaning local governments can continue to impose local taxes on these products if they so choose.

Like other product-specific taxes, taxes on sweetened beverages are controversial, and they’ve encountered pushback almost everywhere they’ve been adopted, including Seattle and Vermont. In 2017, two months after a soda tax took effect in Cook County, Illinois, the Cook County Board repealed it. Philadelphia’s tax on sweetened beverages was upheld recently by the state Supreme Court after a legal battle that lasted almost two years. The City of Brotherly Love is free to tax the distribution of sweetened beverages for now, but opposition to the tax may resurface during the 2019 mayoral race.

Taxes on specific products, like soda, complicate sales tax compliance for the businesses that deal in them. And sales tax compliance is complicated enough, with more than 12,000 sales tax jurisdictions nationwide. Learn how tax automation software can simplify it.

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