Discriminatory Tax Threats

It seems every year policy-makers try to find new gimmicks and schemes to pay for their pet projects. Unfortunately, taxes on consumers who are buying non-alcoholic beverages are becoming a favorite target of many legislators looking to raise a few bucks. During the past several months we’ve seen proposals for such taxes in Chicago, San Francisco, and — most recently — the state of Maine.

Earlier this year, the City of Chicago imposed a 5-cent tax on bottled water, claiming — among other things — that the empty packaging is bad for the environment. However, this argument is paper-thin. First, bottled water containers are 100 percent recyclable. And second, despite the city’s purported rationale, the tax funds are going to a general revenue fund and not earmarked for environmental programs. In response, the American Beverage Association, together with the Illinois Retail Merchants Association, Illinois Food Retailers Association and the International Bottled Water Association, filed a lawsuit in January seeking to invalidate the tax to protect citizens and retailers from this discriminatory tax. Currently, the case is pending in court, but the court of public opinion has spoken already. Not only is the tax opposed by more than 65 percent of Chicago residents, but according to David Vite, president, Illinois Retail Merchant’s Association, customers are buying their water in neighboring towns to avoid the tax. This has a tremendous consequence on Chicago retail stores who are losing business.

In December, San Francisco Mayor Gavin Newsom proposed a tax against drinks containing corn sweeteners (HFCS). In fact, Nathan Ballard, mayoral spokesman, said in an interview, “There’s a well-established nexus between obesity, which is caused by high fructose corn syrup, and the increased health care costs for the city.” However, science proves that HFCS is processed in the body the same as cane sugar, and is not a unique contributor to obesity. Fortunately, the proposal has not moved forward, but it shows a willingness by city officials to target the beverage industry’s products and lump them into a category similar to tobacco as potential products assessed with “sin” taxes.

And now, in mid-April, legislators in Maine passed a tax against the beverage industry to raise money for the state’s health care program DirigoChoice. Instead of finding legitimate and secure means of funding, Maine legislators adopted a tax provision in an eleventh hour, end-of-session deal that was passed and signed with no public comment.

Set to start on September 1, the law puts an excise tax on beverage manufacturers, distributors and wholesalers of $4.00 per gallon of syrup or simple syrup and $0.42 per gallon of bottled soft drinks and beverages produced from powders or base products. This tax would add almost 7 cents to the cost of a 20 oz. soft drink and could mean an end to free or low-cost beverage refills at Maine restaurants. In fact, all beverages except unflavored still water and fruit or vegetable juice containing at least 10 percent juice will be taxed. Legislators hope to raise more than $25 million a year from this tax. Not only does it affect Maine citizens, but it also affects Maine retailers who could lose business to neighboring states with no such tax.

A coalition of organizations including Maine restaurants, chambers of commerce, convenience store operators, grocers and beverage industry members is working to defeat the tax. The group has filed an application with the Secretary of State to initiate a “people’s veto” to repeal the new taxes. Once the Secretary of State approves the application, the coalition called Fed Up With Taxes (www.fedupwithtaxes.org) has until July 17 to collect signatures to put the issue before Mainers on the November ballot.

In total, 10 tax bills targeting our industry were proposed in six states in the 2008 legislative session. We believe that many legislators will continue to see taxing beverages as an alluring option in the 2009 legislative session. Therefore, the beverage industry will continue to aggressively fight these and any future arbitrary taxes that could harm our customers.