My Can of Coke Costs What?!!!

Since January 1, 2018, Seattle residents and visitors have found that drinking cans of Coke and Pepsi, among other sweetened drinks, cost a little bit more. Why? It’s not because of supply and demand. It’s because Seattle has a sweetened beverage tax since January 1.

While the tax is imposed on distributors and not retailers or consumers, realistically, it will burden consumers by increasing the prices charged for the covered beverages. For a can of pop or soda, the tax is $.0175 cents for each ounce of sweetened beverage: That’s $.21 for a 12-ounce can and $.35 for a 20-ounce bottle.

Is Seattle’s sweetened beverage tax unique?

Seattle is not alone in taxing sweetened beverages. Similar taxes have been adopted in Boulder (CO), Philadelphia (PA), and the California-based cities of San Francisco, Oakland, Berkeley, and Albany. A beverage tax adopted in Cook County, Illinois in 2016 was repealed in 2017.

Seattle’s tax rate, $.0175 per fluid ounce, is the second highest rate, surpassed only by Boulder’s tax rate of $.02 per fluid ounce.

Why tax sodas?

The Seattle ordinance recognizes and is designed to address the impacts of sweetened drinks on obesity, diabetes, and tooth decay, and it notes that such drinks have little or no nutritional value.

The uses of the tax proceeds, estimated to exceed $14.8 million in 2018, are set out by the ordinance and include providing money for better access to healthy and affordable food, a contribution to a college scholarship endowment program, facilities for a preschool program, expansion of access to food banks and meal programs, health and nutrition programs for those suffering from diabetes and obesity, and for program administration. In Mayor Jenny Durkan’s 2018 budget proposal, the tax is projected to raise approximately $15 million in 2018.

Doesn’t the tax need to be authorized by state law?

It does, and it is. The tax was imposed through authority provided by RCW 35.22.280(32), or the authority to “grant licenses for any lawful purpose, and to fix by ordinance the amount to be paid therefor." Other jurisdictions have similar authority, including RCW 35.27.370(9) for towns, RCW 35.23.440(8) for second class cities, and RCW 35A.82.020 for code cities.

Seattle’s ordinance specifically indicates that the tax is a general excise tax on the privilege of conducting business and is not a sales, use, or other tax. Seattle’s tax on the sale of firearms and ammunition relied on the same authority and it was upheld by the Supreme Court in Watson v. City of Seattle.

Are there exemptions or exclusions to the tax? How about my mocha?

Yes, there are exemptions; Your mocha is safe.

The tax does not apply to beverages if natural milk is the primary ingredient (e.g., chocolate milk or a mocha); if it's an alcoholic drink;  if the beverage has fewer than 40 calories per 12-ounce serving;  if it's used for medical purposes, meal replacement, or weight control; if it's baby formula; or if it's 100% unsweetened fruit or vegetable juice.

There is an exemption for distributors with a worldwide annual gross income not exceeding $2 million (or a reduced rate if income exceeds $2 million but does not exceed $5 million). Sales are also exempt if the sale is exempt under state or federal law and for direct sales made from manufacturers to consumers.

Is the tax opposed by anyone?

Yes, it has been. The Seattle Times reports that the tax has been opposed by store owners, consumers, unionized beverage-industry workers, and by those who argue the tax is regressive, disproportionally affecting the poor. A webpage posted by Keep Seattle Livable for All encourages readers to contact Seattle City Council members and ask the city council to end the tax.

Does the tax accomplish its purpose?

According to an article about Berkeley's sweetened beverage tax in Time magazine, the tax seems to be working: Sweetened beverage consumption is down and consumption of water is up. The article further notes, though, that sales of sweetened drinks in surrounding cities has increased.

It’s likely too early to tell how effective Seattle’s ordinance is, although it has similarly been argued that the Seattle tax will result in customers going outside the city to purchase sweetened beverages. Costco, for example, has posted notice in its Seattle warehouse that the cost of a case of Gatorade has increased by $10.34 and suggests that customers purchase the sweetened drinks at warehouses in Tukwila and Shoreline.

And, of course, some consumers may choose to consume beverages sweetened beverages not covered by the tax, such as mochas, chocolate milk, or alcohol.

An article by Citizens Against Government Waste suggests that the tax “is not doing too well.” While the article sets out arguments against the tax, it does not provide statistical evidence relating to the effectiveness of the Seattle’s tax.

Questions? Comments?

If you have questions about this or other local government issues, please use our Ask MRSC form or call us at (206) 625-1300 or (800) 933-6772. If you have comments about this blog post, please comment below or email me at psullivan@mrsc.org.