- A recent study found that 93% of the tax on sugar-sweetened beverages at stores in the Philadelphia airport was passed along to consumers. An earlier study by the same researcher showed that the pass-through for the soda tax in Berkeley, California, ranged from 43% to 69%.
- John Cawley from Cornell University's Department of Policy Analysis and Management analyzed prices at 21 taxed and 10 untaxed retailers at the airport, which straddles the city's borders. He visited both before the 1.5-cents-per-ounce tax took effect in January and shortly afterward.
- Cawley reported that 36 days after the Philadelphia tax was levied on beverage distributors, stores subject to the tax in the Philadelphia airport passed along 93% of it to consumers, and stores on the other side of the airport may have raised their prices in response.
Philadelphia's 1.5-cent-per-ounce tax on sugar-sweetened beverages has been controversial since its inception. After the tax started being collected at the beginning of the year, city retailers complained about smaller basket sizes and soda companies lamented sharp decreases in business. The tax has helped bring about job cuts and closures at local businesses and layoffs at soda distributors that serve the Philadelphia area.
Cawley's Philadelphia research found that the average price of sugar-sweetened beverages in December 2016 — before the tax — was 12.37 cents per ounce on the untaxed side of the airport and 12.53 cents per ounce on the taxed side.
In February — after the tax — it had risen to 12.93 cents per ounce on the untaxed side and 13.92 cents per ounce on the taxed side — almost a cent more per ounce in stores where the tax was imposed. Based on Cawley's calculations, 55.3% of the tax was passed on to consumers.
Looking just at the the change in prices within stores subject to the tax — since the other stores may have used the opportunity to raise their prices —. they increased 0.91 cents per ounce by January and 1.39 cents per ounce by February. The percentage of the tax passed on to consumers was 61% in January and 93% in February.
Cawley wrote that it's not clear why Philadelphia's pass-through percentage was so high compared to Berkeley, a study Cawley also conducted. He suggested that future studies should investigate explanations for this difference and look at how the Philadelphia tax affected the purchase and consumption of sugar-sweetened beverages and consumer health.
However, many retailers specifically itemize the soda tax on receipts, showing consumers exactly how much they are paying. According to the law, the tax on soda distrubutors and does not need to be passed through. A spokesperson for Philadelphia Mayor Jim Kenney, who championed the tax last year, told Fox News in January that the onus for keeping prices lower — and increases in soda prices more reasonable — was on the distributor. With grocery margins so slim, however, many retailers could see little room to absorb this cost and continue to run businesses that are profitable on the whole. Specifically itemizing the tax helps show consumers exactly where the price increase comes from — and could at least retain some customer loyalty by demonstrating that stores themselves are trying to keep prices low.
Although Cawley's study concentrated on Philadelphia's airport, sales there aren't truly indicative of consumer response because of the closed nature of beverages and air travel. However, other retailers in the area have seen great losses. Some reported drops in sales of 40% to 50% because of the tax.
When the one-cent-per-ounce tax was imposed in Berkeley in 2014, many retailers chose not to pass the entire tax on to consumers, Cawley found. However, overall soda sales were down 21% in Berkeley last year, so the tax did lead some to eschew sugary drinks in favor of water, milk and other beverages.
While other jurisdictions mull soda taxes, it remains to be seen how they will be passed along to consumers. Even though proponents of the taxes often say they are intended to raise revenues, their impact has been changing consumer behavior. This in turn frustrates retailers, distributors, manufacturers and consumers — and often ends up bringing in less revenue than anticipated.