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PHILADELPHIA — The city's tax on sugar and diet beverages went into effect Jan. 1, and some retailers are already seeing the fallout from consumers.
The Philadelphia City Council approved the levy by a 13-4 vote in June. The city, which became the first major city to institute a so-called soda tax, plans to spend much of the estimated $90 million in new tax revenue next year on pre-kindergarten programs, community schools and recreation centers, as CSNews Online previously reported.
The 1.5-cent-per-ounce tax equals 18 cents on a 12-ounce can of soda or $1.44 on a six-pack of 16-ounce bottles. This includes "diet" beverages as well as syrups and concentrates that make sweetened beverages.
According to the news outlet BillyPenn.com, the city has approximately 1,500 corner stores that face taxes on nearly every item they sell. Now, nearly two weeks in, some retail operators are seeing a shift in their business.
"From Jan. 1, it's been completely dead," said Mohammad Alqtaishat, owner at Roxborough's M&M Market. "I'm not making money at all."
Alqtaishat's location doesn't help. Prospective customers can travel a couple miles to Bala Cynwyd or Gladwyne, and avoid paying the levy. He told the news outlet that the dynamic has happened before with cigarette taxes, and that he expects the same to happen with the tax on sugary beverages.
In just one week, he said "you could count on a finger" how many people have been buying soda, tea and energy drinks in sizes or quantities larger than a can, he added.
According to Alqtaishat, drinks constitute a large share of overall revenue — especially in the summer. He puts the figure at close to 50 percent. Most other corner store owners interviewed by BillyPenn.com said it was closer to 25 or 30 percent.
"Wawa, which is a big chain, they don't care," said Ricky, a retailer in South Philadelphia. "They can move around and figure out how to move it back. Small businesses like myself, it's truly dependent on the soda. The way you make money is on soda and water."
According to the news outlet, supplying more water or other untaxed drink comes with an incentive for retailers. The city is offering a tax credit on the Business Income and Receipts Tax (BIRT) of up to $2,000 for stores that increase their supply of these types of drinks.
Marisa Waxman, first deputy revenue commissioner, said any increase of supply up to $2,000 in healthier drinks is basically free.
There will be no way of telling how many stores apply for the tax credit until next year, when taxes are filed for 2017. Only stores making at least $100,000 — the point at which the BIRT goes into effect — are eligible.
Waxman told the news outlet that the city will consider other incentives after each year of the tax credit, particularly if the smallest businesses need better assistance. According to NACS, the Association for Convenience & Fuel Retailing, the average convenience store in the United States makes $265,000 in revenue each year, excluding gasoline sales.
The tax came under legal fire from the beverage industry, which argued that the tax duplicates the state sales tax already imposed on soda and that it unfairly taxes drinks based on their size, not price.
However, last month, Judge Gary S. Glazer dismissed the complaint "in its entirety." He said that the city's sugary beverage tax does not duplicate Pennsylvania's sales and use tax, violate the state Constitution's Uniformity Clause, or force Supplemental Nutrition Assistance Program beneficiaries to spend the program's funds on the sales tax.