As sugary drinks tax looms, Philadelphia spending money to make money

Philadelphia’s new tax on sweetened beverages takes effect Sunday, and, to make sure drink distributors and retailers pay up, the city is spending money to make money.

The 1.5-cents-per-ounce tax is levied on beverage distributors. Retailers that do not purchase from a registered distributor are required to pay.

The tax is expected to generate $91 million a year. Much of the revenue will go to expanding the number of pre-K seats, revamping the city’s parks, recreation centers and libraries and filling up the city’s fund balance.

These are big, legacy-making (or breaking) projects for Mayor Jim Kenney.

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According to the city’s revenue department, Philadelphia will spend $1.8 million in the first year to make sure it collects what it’s owed.

“You do have to make investments,” said Deputy Revenue Commissioner Marisa Waxman. “If you don’t tell anybody about the tax, if you make it really hard for them to figure out how to comply, you shouldn’t be surprised if in the end, the revenues you collected are less.”

So what is that investment paying for? Waxman said that includes money to create a new web portal where distributors and retailers can register and pay their taxes online, as well as hiring 15 new staffers. So far, the revenue department has hired two new customer service representatives, a project manager and outreach coordinator. The department plans to hire additional investigators and auditors to help enforce the tax and it is training existing staff to backfill those postions in the meantime.

The city has also contracted with multiple outside firms. Delaware-based AB+C Creative Intelligence is being paid $423,575 to handle public relations and create an outreach strategy. The firm helped create the multi-lingual website, organized meetings with distributors and trade associations, and has sent out street teams to distribute information about the tax to thousands of small businesses across the city. 

The city is also paying MuniServices LLC $25,000 to help figure out which businesses are subject to the tax. The company performed similar services for Berkeley, California, the first city in the U.S. to pass a sugary drinks tax. 

A third firm, Philadelphia-based Bellevue Strategies, is being paid $24,900 to communicate with elected officials about the tax. President and CEO Mustafa Rashed lobbied on behalf of Philadelphians For a Fair Future, a private nonprofit created to collect money for a campaign backing the tax on behalf of Kenney.

The revenue department has also been working closely with the city’s health department to handle questions about which beverages are taxable. For instance, sweetened beverages that are more than 50 percent milk, such as soymilk, are exempt from the tax. However, almond milk is taxable because it does not meet the federal nutrition requirements for fluid milk subsititutes, said department spokesman Jeff Moran.

Waxman said the city’s first phase of tax rollout is outreach. Next, retailers and distribitors will be visited by auditors and investigators to make sure they’re paying up. The first collection will be on Feb. 20. 

“What we don’t want folks to say is, ‘I had no idea. I didn’t know what I needed to do,'” Waxman said. 

Despite these outreach efforts, there are some kinks to work out, said Alex Baloga with with the Pennsylvania Food Merchants Association, a trade group that represents wholesailers and retailers.

“The big thing right now is trying to figure out is … what it’s going to look like on the shelf,” he said. “So is the shelf tag going to read a certain way? Is there going to be something on the register? How are you going to notify the customer of the increase?”

soda2x600WHYY listener Greg Yohn sent this photos of new price labels on shelves at the ShopRite on Aramingo Avenue in Northeast Philadelphia. They show how much more the beverages will cost when Philadelphia’s new tax on sugary drinks takes effect on Sunday, January 1. (Photo courtesy of Greg Yohn)

For example, ShopRite is producing new price tags for store shelves that include a yellow box showing exactly how much of the “Philly Bev Tax” will be applied to the product when customers check out. At the ShopRite on Aramingo Avenue in Northeast Philadelphia, a two-liter bottle of Canada Dry pineapple soda will cost $1.01 more. 

Earlier this month, a Pennsylvania state judge dismissed a lawsuit from the soda industry to stop the tax. The American Beverage Association’s legal team plans to appeal to the Commonwealth Court in Harrisburg.

Correction: The original version of this story incorrectly stated that beverages that are less than 50 percent milk are exempt from the tax. It has also been clarified to note that the tax is levied on beverage distributors, but retailers that do not buy from a registered distributor must pay.

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