City of Philadelphia
Sales Tax
In June 2016, the City Council passed its five-year budget that included the implementation of Philadelphia Beverage Tax (PBT). Through the PBT initiative, the City charges distributors of sugar sweetened beverages a 1.5-cents per ounce tax on beverage distribution, including syrups and concentrates. In its first full year, the PBT generated nearly $79 million in new revenue for the City, which was used for Philadelphia Pre-K (PHLpreK) and several other educational and neighborhood revitalization initiatives. PBT created 2,000 quality PHLpreK slots in its first year. The tax is projected to create 5,500 new locally funded PHLpreK slots by 2023.
three- and four-year-old children in Philadelphia
%
of three-and four-year olds have access to affordable quality PHLpreK
quality PHLpreK slots created in the first year
three- and four-year-old children attend PHLprek since 2017
Challenges
Soda Tax Unpopular
In 2010, former Mayor Nutter proposed a 2-cents per ounce tax on soda to reduce childhood obesity. The controversy surrounding the new tax pressured the City Council to vote against it. Instead, the Council approved to increase property tax by about four
Soda Tax Rate Changed
In July 2016, as part of its budget process, City officials lowered the beverage tax to 1.5-cents per ounce from the initial proposal of 3-cents per ounce.
Soda Industry Files Lawsuit
Pennsylvania Retailers Association, National Association of Theatre and Tri-State Automatic Merchandising Council filed lawsuits against Kenney’s Administration. The lawsuits argue that the tax violates the Sterling Act by double taxing beverages since the soda tax is levied on distributors and beverages are taxed again under the Commonwealth’s sales tax when sold to consumers. The lawsuit against the PBT also claims that it violates the uniformity clause in Pennsylvania, which prohibits unequal taxing of similar products. The lawsuit has gone to two appeal courts including the Pennsylvania Supreme Court which upheld the constitutionality of the PBT. The industry sued again in January of 2018 and while the Pennsylvania Supreme Court decided to hear the case, it upheld the tax.
Soda Tax Higher Than Beer
The PBT represents 24 times the Pennsylvania excise tax rate on beer, making some non-alcoholic beverage more expensive than beer.
Getting to Action
2015 Eighty percent of voters approve and create the Philadelphia Commission on Universal Pre-Kindergarten.
Jun 2016 Philadelphia City Council approves the passage of the Philadelphia Beverage Tax. Mayor Kenney approves the City Council changes to the Philadelphia Beverage Tax and signs the five-year plan. The changes include a reduced tax from 3-cents to 1.5-cents per ounce of sugar-sweetened beverages. Funding also creates Community Schools and renovations to libraries, recreation centers and parks to broaden constituent support.
Late 2016 American Beverage Association files a lawsuit against Mayor Kenney’s administration, arguing the legality of the Philadelphia Beverage Tax.
Commonwealth Court of Pennsylvania Judge Gary Glazer dismisses the lawsuit against Kenney administration.
2017 The Philadelphia Beverage Tax plan takes effect; PHLpreK students begin attending PHLpreK programs across the City.
Pennsylvania Commonwealth Court votes to uphold Philadelphia Beverage Tax plan.
Philadelphia passes the “City of Philadelphia Sugar-Sweetened Beverage Tax Regulation” in its General Provision.
2018 The Pennsylvania Supreme Court agrees to hear another complaint brought by distributors, small retailers and the American Beverage Association. This is now of national interest as it will influence similar levies in other states and cities.
The Pennsylvania Supreme Court upholds the Philadelphia Beverage Tax.
The City of Philadelphia adds 250 new seats to the PHLpreK program, and revises plans to ramp up to 5500 seats by September 2020.
Result
Since January 2017, the PBT has funded education for over 4,000 children, ages 3 and 4, participating in nationally accredited public and private institutions. About 2,000 children have already graduated to kindergarten and new children have taken the vacated seats. According to a report by the Mayor’s Office of Education in December 2017, after the PBT passed, about 38 new teaching positions were created and about 251 more staff were hired, with at least 191 of the positions were teachers. Thirty-three childcare providers have moved from “growth” status to quality status, as indicated by their Keystone STARS rating. This moved over 2,200 PHLpreK seats (City-funded as well as private pay and federal or state-funded) to quality. The PBT provides funding per child, which represents an amount of $8,500 per child for the traditional six-hour school day and 180-day school year. The cost per child includes the cost of hiring additional staff and adhering to the City’s 21st century minimum wage requirements. The City has raised more than $130 million since the PBT took effect in January 2017. It has come within 85% of projection, which economists say is quite good. The City’s current five-year plan for PHLpreK growth is to fund 5,500 seats annually by FY 2023.
Keys to Success
Consumers can avoid tax by reducing consumption of sweetened beverages
Although the opposition invested $10.2 million against campaign, the City’s $2 million campaign, funded in part by philanthropy, to support the PBT was successful.
Applied the increased revenue to specific programs to captivate more constituents. Because revenue sources support libraries, community centers, parks, and community schools, this broadened a network of supports from foundations, advocacy organizations (like Fair Future), and advocates in education, parks and recreation, and health to pass the PBT.
At full implementation, only the three key initiatives, PHLpreK, Community Schools, and Rebuild will be funded by PBT.
