What Is the Soda Tax?

Definition and Examples of the Soda Tax

Little boy drinking an orange sports drink
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Chris / CC BY-SA 2.0 / Flickr

The soda tax is technically a “sweetened drink” tax that's imposed in some locations, equal to a few cents per ounce payable when consumers purchase soft drinks or similar beverages. It's predominantly imposed by cities, not at the state or federal level, and cities have varying rules as to exactly which beverages qualify.

A handful of U.S. jurisdictions have jumped on the “soda tax” bandwagon, but at least two have taken steps to scrap the idea in 2017 and 2018. So what is this tax and why would anyone want to impose it on a simple pleasure like soda?

What Is the Soda Tax?

The soda tax is something like a sales tax specifically aimed at one type of product, and it's charged on top of any sales tax that's already being imposed. The tax doesn't apply just to sodas, at least not in all cities that collect it. The drink doesn't even necessarily have to contain sugar. Some cities include drinks made with artificial sweeteners.

Sports drink enthusiasts can get hit with this tax as well. Baby formula is generally exempt, and you shouldn't have to worry if you ask for sugar in your coffee-to-go. But a Starbucks’ Frappuccino will most likely be taxed because it’s actually created with sugar. Some cities spare alcohol, too, because it’s already been taxed.

Most cities' taxes are aimed at sugar-sweetened drinks, but Philadelphia and Washington include "diet" beverages containing artificial sweeteners.

Eight cities collected this tax as of 2020: 

  • Berkeley, California
  • Albany, California
  • Oakland, California
  • Philadelphia, Pennsylvania
  • Boulder, Colorado
  • San Francisco, California
  • Seattle, Washington
  • Washington D.C.

Chicago had a soda tax at one point, but it was repealed effective October 2017. Arizona and Michigan have issued rulings prohibiting local governments from enacting a soda tax.

California passed a state-wide ban on the soda tax in June 2018 that will remain in place for 12 years. It doesn't abolish the existing soda taxes, but it prohibits localities from instituting new ones during this time.

How Does the Soda Tax Work?

The soda tax ranges from 1 to 2 cents per ounce. This might not sound like much, but price of a 12-pack of Coca-Cola can increase by as much as $2 after the tax is applied.

Consumers aren't usually responsible for paying the tax in most cities, however—at least not directly. It's typically collected from distributors, who then pass the cost on to retailers who in turn hike the prices paid by consumers.

Boulder has the highest tax at 2 cents per ounce, followed by Seattle at 1.75 cents per ounce. The others levy 1 cent, except for the District of Columbia which charges a hefty 8% sales tax on the beverages directly to consumers.

Chicago had a soda tax at one point, but it was repealed effective October 2017. Arizona and Michigan have issues rulings prohibiting local governments from enacting a soda tax.

Pros and Cons of the Soda Tax

The goal behind most taxes is almost always to collect revenue, but cities that impose the soda tax claim to have consumers' wellbeing in mind as well. Some have said that the tax “incentivizes” families to get healthier.

Drinks that include sugar contribute to heart disease, liver disease, and Type 2 diabetes, not to mention obesity and tooth decay.

Proponents of the tax argue that liquid sugar packs more of an unhealthy punch than sugars found in food, and that drinking 20 ounces of a soft drink is the equivalent of swallowing 22 packets of sugar.

Berkeley has claimed that the consumption of water there has increased 63% in accordance with a 21% decline in soda consumption in response to the tax, but the American Journal of Public Health indicates that this data is taken only from low-income neighborhoods.

Local businesses claim that the tax has been quite a financial blow to them. Philadelphia residents reportedly cross city and county lines to buy their sodas elsewhere. They’re not drinking less soda—they’re just not buying it locally, and they’re willing to drive upward of 10 miles to purchase it in a tax-free locale.

Of course, consumers aren’t going all that way just to buy soda. They purchase other groceries while they're there, and many are gassing up their vehicles away from home as well.

Opponents argue that the tax places an unfair burden upon those who can’t afford to thumb their collective noses at local governments and drive elsewhere to make their purchases.

The cities themselves seem to be faring better, however. Philadelphia officials claim that the soda tax funds more than 2,000 preschool classrooms for low-income families and that it initially brought an additional $75 million into the city’s coffers, although revenues later flagged.

Berkeley has assigned a panel of nutritionists, educators, and health care workers to decide where soda tax revenues will do the most good. Schools in this area have already been funded for gardening and healthy cooking classes. The city says it has raised more than $2.5 million from the tax, less than Philadelphia’s lofty numbers, but the tax is half a cent more per ounce in Philadelphia and the city is far larger. 

Can We Fight a Soda Tax?

The opposition hasn't accepted the soda tax quietly in areas where it’s being imposed. Many affected consumers understandably take the position that they don’t want the government trying to control something as personal to them as their diets. Distributors argue that they’re being unfairly targeted.

The beverage industry in Philadelphia filed a lawsuit against the city in 2017, hoping to derail the tax. Store owners and distributors have claimed that sales of soft drinks and related beverages dropped from 15% to 45% since the soda tax was implemented and that this has prompted employee layoffs.

Key Takeaways

  • The soda tax is similar to and in addition to a sales tax on certain sugar-sweetened beverages.
  • Distributors are typically responsible for paying the tax, but the cost trickles down to increased prices for consumers.
  • Eight cities collected a soda tax as of 2020, and four of them are in California.
  • Proponents claim that the tax promotes healthier living, but opponents argue that it unfairly affects the lower class who can’t necessarily drive to other locations to buy their sodas.

Article Sources

  1. Tax Policy Center. "How Do State and Local Soda Taxes Work?" Accessed July 24, 2020.

  2. Rice University's Baker Institute. "Should There Be a Soda Tax?" Page 2. Accessed July 24, 2020.

  3. American Journal of Public Health. "Impact of the Berkeley Excise Tax on Sugar-Sweetened Beverage Consumption." Accessed July 24, 2020.

  4. Urban Institute. "Soda Taxes." Accessed July 24, 2020.

  5. Tax Foundation. "Soda Tax Experiment Failing in Philadelphia Amid Consumer Angst and Revenue Shortfalls." Accessed July 25, 2020.