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Is Sales Tax on Soft Drinks Working?

  • Sep 7, 2015 | Mark Berens

It was the 1980s. A time of excess, of big fun and bigger hair, and--according to health experts--a time when new beverage-size options redefined the term “belt-loosening”:

1980: 7-Eleven introduces the 32-ounce Big Gulp with the slogan, "7-Eleven's Big Gulp gives you another kind of freedom: freedom of choice."

1986: 7-Eleven follows up its success with a 44-ounce Super Big Gulp.

1989: 7-Eleven rolls out the 64-ounce Double Gulp.

Next Stop: Walley World

While 7-Eleven wasn’t alone in offering mega portions, the suspected connection between obesity and their popular flagship product seemed as good a place as any to have a look.

What followed was a U.S. Department of Agriculture study, which uncovered that roughly half of U.S. teenage boys drank more than two six-packs of soft drinks every week, and children aged 6–19 were three times as likely to be overweight as in 1970. With these facts, coupled with some undeniable visual evidence at our nation’s water parks, it was only a matter of time until someone would offer a modest proposal to reign things in.

That someone was Kelly Brownell.

Supertax Me

In 1994, Brownell, Director of the Rudd Center for Food Policy and Obesity, suggested a tax on sugary soft drinks. However, despite a U.S. Department of Health & Human Services report that the tax could generate more than $24 billion in four years, the controversial consumption tax was slow to take off.

Public support--and then legislative action--only came after several high-profile events such as the release of Morgan Spurlock’s Super Size Me, New York mayor Bloomberg’s proposal to ban sugary drinks over sixteen ounces, and the removal of soft drink machines from many US schools. By 2014, 34 states and Washington, DC, charged sales taxes on sugar-sweetened soft drinks sold in stores (average across taxing states: 5.172 percent). Most recently, Berkeley, California, became the first U.S. city to pass a tax, with more than three-quarters of voters supporting a tax of one cent per ounce.

But Do They Work?

While the funds have fattened state coffers as expected, two things are also true: (1) since the 2000s, Americans have reduced their soda consumption with or without taxes, and (2) the five most obese states--Mississippi, Alabama, West Virginia, Tennessee, and Oklahoma--still tax soda. It’s no surprise, then, that professional opinion on the tax’s efficacy are more mixed than a self-serve Slurpee.

Camp 1: Yes, they definitely have an impact.

  • A modest tax on sugar-sweetened beverages could both raise significant revenues and improve public health by reducing obesity. (Preventive Medicine)
  • A one-cent-per-ounce excise tax on sugared beverages would reduce consumption by more than 10 percent. (New England Journal of Medicine)
  • A .04 cent per-calorie tax on sugar-sweetened beverages would reduce consumption by 5,800 calories per person annually and at a lower consumer cost than an ounce-based tax. (American Journal of Agricultural Economics)

Camp 2: Well, they have impact--in theory.

  • Small soft drink taxes do little to lessen consumption or prevent childhood obesity, but larger taxes--about 18 cents on the dollar--probably would. (Health Affairs)
  • Comprehensive restrictions on soft drinks in schools and imposing higher tax rates than are currently in place might have more of an impact on the obesity epidemic. (Fletcher, et al)
  • It is likely that taxes would need to be raised substantially to detect significant associations between taxes and adolescent weight. (Journal of Adolescent Health)

Camp 3: No, taxing pop doesn’t change anything (or makes it worse).

  • Small taxes on sodas and other sugar-sweetened drinks do not have an impact on reducing consumption or the childhood obesity epidemic. (Health Affairs)
  • Existing taxes on soda, which are typically not much higher than 4 percent . . . do not substantially affect overall levels of soda consumption or obesity rates. (Health Affairs)
  • Even larger taxes--20 percent and 40 percent--on sugar-sweetened beverages would largely not affect calorie intake because people switch to untaxed, but equally caloric, beverages. (Duke University and the National University of Singapore)

The Choice(s) of a New Generation

The concerns above, however, seem quaint when viewed against the rising consumption of today’s slickly marketed “healthier” coffees, bottled waters, energy drinks, and ready-to-drink teas over old-fashioned, in-decline soda pop. With their unique artisanal ingredients--and nonstandard serving sizes and down-the-hatch delivery methods--they present new challenges for the FDA, lobbyists, and medical professionals.

But while new, these companies are old pros at sidestepping the sugar controversy. To win the hearts of consumers and avoid legal challenges, many avoid making overt health claims and subtly suggest that their formulations--with raw cane sugar, stevia, and no gluten--are simply healthier than sugar-infused options. It’s a pitch that modern, healthier consumers are buying but one that leaves beverage distributors, restaurants, stores, and legislators to sift through ever-changing loopholes.


We live on a planet that’s 70 percent water and haul around bodies holding roughly the same percentage. We have no choice: We’re hardwired to concern ourselves with liquid refreshment. Beverage manufacturers know it. Lawmakers know it. Our bodies know it. The challenge was--and remains--maintaining a healthy balance among the powerful thirsts for revenue, health, and personal choice.

Sales tax rates, rules, and regulations change frequently. Although we hope you'll find this information helpful, this blog is for informational purposes only and does not provide legal or tax advice.
Avalara Author
Mark Berens
Avalara Author Mark Berens