Soda tax lawsuit dismissed

A Philadelphia Common Pleas Court judge ruled Monday that the city's controversial sweetened beverage tax is legal, paving the way for Mayor Kenney to implement one of his main campaign promises: universal prekindergarten.

The decision by Judge Gary S. Glazer was in response to a lawsuit filed in September challenging the recently created tax. The suit was dismissed in its entirety.

The news came on an otherwise quiet Monday, days before the Christmas weekend and approaching the Jan. 1 scheduled start of the tax. As news spread among Kenney staffers, some took to the second floor hallway in City Hall to cheer.

A visibly pleased Kenney said the judge's decision vindicated the city's position.

"Our kids can't wait," Kenney said at an appearance at Ludlow Elementary in Kensington. "They've waited too many generations for this. We're going to move forward to change the narrative of poverty and misery in this city."

He urged the beverage industry not to appeal to the state Supreme Court. Shanin Specter, one of the attorneys for the plaintiffs, responded to the judge's decision by saying, "We shall appeal."

The Philadelphians Against Grocery Tax Coalition, which lobbied against the sweetened beverage tax, released a statement expressing disappointment with Glazer's decision.

"More than 30,000 Philadelphians and more than 1,600 businesses and local organizations have joined together to say that this tax unfairly targets working families and small businesses," the statement said. "We will continue to oppose this discriminatory and regressive tax, which is not a sustainable revenue source to support important initiatives like pre-K programs."

The dismissal of the lawsuit is a major victory for Kenney, who made funding early childhood education through a sweetened beverage tax his primary policy issue in his first year as mayor.

The tax, often referred to as the soda tax, adds 1.5 cents per ounce to the cost of most sugary and diet beverages. The tax is applied at the distributor level. The first tax bill is due Feb. 20.

Just Friday, the Kenney administration published a list of dozens of distributors who have already registered with the city and presumably plan to pay the tax. Vendors must purchase sweetened beverages from registered distributors or pay the tax themselves.

Former Mayor Michael A. Nutter twice attempted to pass a soda tax but failed to get enough support from City Council, including then-Councilman Kenney. Once Kenney became mayor, he switched positions on taxing sugary beverages.

Kenney presented the tax as the city's best option for funding an expansion of early-childhood education and a number of other initiatives, including the rehabilitation of hundreds of recreation centers and playgrounds. Connecting the tax to prekindergarten and parks and rec centers was the winning formula.

The tax, approved by City Council in June on a 13-4 vote, is expected to generate about $92 million a year.

Its passage boosts Kenney onto the national stage as Philadelphia became the first major U.S. city to pass such a levy. In the months since, similar taxes have been approved by voters in Boulder, Colo.; San Francisco, Oakland and Albany, Calif.; and Cook County, Ill.

The tax has been strongly opposed by the beverage industry, which spent more than $10 million fighting it. (In comparison, Philadelphians for a Fair Future, a nonprofit created to support the tax, spent $2.2 million.) A few months after Philadelphia passed the tax, a group of industry associations, Philadelphia businesses, and residents filed a lawsuit against the city over the tax, arguing it is unconstitutional.

The lawsuit contended that the new tax is preempted by the state sales tax and would violate state law that requires similar products to be taxed uniformly at the same rate.

The lawsuit also contended that products purchased through the Supplemental Nutrition Assistance Program (SNAP), popularly known as food stamps, are exempt from sales taxes and therefore implementing a soda tax on such purchases would be in violation of state and federal rules.

Glazer dismissed all three arguments.

In a 14-page opinion, Glazer said that the soda tax is not preempted by the state sales tax because the taxes are fundamentally different, one being levied at the point of distribution and one at the point of sale.

The plaintiffs had stressed that distributors are likely to pass some of the tax on to retailers, and retailers on to consumers. But Glazer said the argument was not relevant. What matters, he said, is how the tax "operates, not what private actors will do in response to the tax to offset the burden of the tax."

He used the same reasoning to disregarded the plaintiff's argument regarding SNAP, saying those who use food stamps will not be paying the soda tax, which is levied on distributors.

On the uniformity argument, Glazer ruled that the tax is "uniformly applied to distributors" because all distributors are subject to the same tax calculation formula of 1.5 cents per ounce.

The city plans to use the first round of beverage tax revenue to pay for 2,000 new prekindergarten seats in January. As of last week, Kenney had said that 1,700 students were signed up for the new pre-K slots.

The city has already spent nearly $12 million preparing for the launch of its expanded pre-K program. Most of that money - $10.2 million - will go to pre-K providers at sites scattered throughout the city in this first round.

The plan is to place 6,500 more children into quality prekindergarten classrooms over the next four years. Once the program is fully implemented, the cost is estimated to be about $60 million a year.

Former Gov. Ed Rendell, who appeared at a news conference about book donations with Kenney on Monday afternoon, hailed Glazer's ruling and Kenney for his focus.

"No one will go down in the city's history as doing more for education than Mayor Kenney," Rendell said.

cvargas@phillynews.com

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Staff writers Kristen A. Graham and Chris Brennan contributed to this article.