- California's 2018 law prohibiting cities from enacting new sugary drink taxes until 2031 is illegal, according to a lawsuit filed on Monday, because it curtails local governments’ ability to raise taxes for public services. The suit was filed in Sacramento Superior Court on behalf of nonprofit Cultiva La Salud and Santa Cruz City Councilmember Martine Watkins.
- The lawsuit specifically attacks a provision in the law that prohibits cities from imposing new taxes or fees on groceries. The plaintiffs argue this violates the state constitution, which designates tax levying as the domain of municipalities.
- "It is imperative that local governments have decision-making power and all tools at their disposal to protect the health and safety of their residents, especially during this time of COVID-19," Sarah de Guia, CEO of ChangeLab Solutions, which supports the lawsuit, said in a statement. "Abusive laws like this one harm families and communities, and they should have no place in California or anywhere else."
If the health group and council member can get a ruling in their favor, there is a good chance that California cities will take advantage of the opportunity to tax soda and other sweetened drinks. Santa Cruz was in the process of placing a sugary beverage tax on its ballot for voter approval, and this state law halted the ballot question. California as a whole may even be able to take advantage of the ruling. Last year, the state's lawmakers introduced five bills with the goal of reducing consumer consumption of sweetened drinks using taxes, warning labels and limits on sizes and product placement.
The results of this case could also have ripple effects in Arizona, Washington and Michigan, which have also banned local governments from taxing foods and beverages. However, because the lawsuit is filed in a California state court, a ruling will not automatically apply to the other states.
California's statewide soda tax prohibition was the result of what some have described as strong arm tactics from the beverage industry. In 2018, the industry gained enough signatures to place an initiative on the statewide ballot that would have made the process for raising any local taxes by increasing the amount of voters to approve them from a simple majority to two-thirds. The industry offered to withdraw the initiative from the ballot in exchange for the grocery tax ban, which the state legislature passed in a hurry. In a message after signing the soda tax prohibition into law, then-California Gov. Jerry Brown called the ballot initiative that the beverage industry used as bait "an abomination," according to Kaiser Health News.
But it is not just California that has been on the receiving end of these defense maneuvers. Big soda companies, including Coca-Cola, Pepsi and Keurig Dr Pepper, have spent money nationwide on campaigns to ban grocery taxes — which is consumer-friendly terminology that also includes soda taxes. On the other side of the aisle, municipalities have been fighting large beverage companies for years, working to pass sugary drink taxes to both raise money for cities and reduce the overall consumption of soda and other sugary beverages.
In recent years, cities including Berkley, Philadelphia and Seattle all established soda taxes and drummed up wider interest in similar measures nationwide. Following the rollout of these taxes in Berkeley, consumption of sugary beverages fell by 9.6%, while sales of untaxed beverages like bottled water rose by 3.5%. In Philadelphia, taxes reduced the frequency of adults’ sugary beverage consumption by 31%. However, some studies found consumers just traveled outside these cities to buy their soda tax-free.
As soda consumption went down, revenues for some municipalities went up. In the first 12 months of Philadelphia’s tax collection, revenues totaled about $79 million. Although this was 15% short of projections, the city was able to increase public safety, fund educational opportunities and create jobs.
Funds for cities nationwide are in short supply amid the pandemic and a tax that raises pennies on the dollar for the consumption of soda may prove to be a lucrative funding source. However, these sugary drink taxes have remained controversial wherever they have surfaced, and it is unlikely that the beverage industry will give up the fight, even if this lawsuit overturns California's ban.