Breaking News: PA Supreme Court Upholds Legality of Philly Beverage Tax

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Philadelphia mayor Jim Kenney and his city council can declare victory as the Pennsylvania Supreme Court upheld the city’s controversial tax on soft drinks and other sweetened beverages.

In a 4-2 majority opinion, announced on July 18, Pennsylvania’s highest court found that the city had not violated state law by approving a 1.5-cents-per-ounce tax on the distribution of beverages.

The seven-member panel voted in favor of upholding the ruling made last year by the state’s Commonwealth Court. Justice Kevin M. Dougherty, who is from Philadelphia, did not vote on the matter. The Harrisburg-based judiciary first heard arguments on the case in May.

Opponents of the tax, which became law on January 1, 2016, argued that the levy created an illegal double taxation standard when it was passed on to consumers who already pay sales taxes.

Industry trade groups, including the American Beverage Association and Ax the Philly Bev Tax Coalition, were critical of the ruling.

“It is now up to our elected officials to listen to the concerns of their constituents and provide Philadelphians much needed relief by reversing this tax,” Ax the Bev Tax said in a statement.

Trade groups who opposed the tax cited the soda levy violates a depression-era Pennsylvania law called the Sterling Act that allows municipalities to tax anything not already taxed by the state. The City of Philadelphia city argued that the beverage tax impacted wholesale transactions, not retail ones.

In his majority opinion, Chief Justice Thomas Saylor wrote that the Sterling Act gives the city a broad power to tax anything the Commonwealth could, but does not presently, tax. In the dissenting view, Justice David Wecht said the soda tax “impermissibly imposes upon the state sales tax in violation of the Sterling Act. A rose by any other name smells just as sweet, and, whether styled a retail tax or a distribution tax, the levy here at bar, like the state sales tax, raises revenue specifically by burdening the proceeds from the retail sale of sugar-sweetened beverages.”

The 1.5-cents-per-ounce tax was promoted by Kenney and members of the city council as a financial pipeline to expand pre-K programs, create community schools, and improve libraries, recreation centers and parks in Philadelphia. City officials had said that funding of some of those programs had been suspended while the case was ongoing and will now be allowed to expand.

“These programs, funded by the beverage tax, will fuel the aspirations and dreams of those who have waited too long for investments in their communities,” Kenney said in a written statement. “The City of Philadelphia will now proceed expeditiously with our original plans — delayed in whole or part by nearly two years of litigation — to fully ramp up these programs now that the legal challenge has been resolved.”

While lobbying to promote the bill in late 2016, Mayor Kenney promised the beverage tax would raise approximately $90 million a year to support those educational and recreation programs. In the first 18 months, an estimated $110 million has been raised including $79 million during the first year alone, falling far short of the predicted goal.