Beverage tax upheld by Commonwealth Court

A panel of judges has upheld Philadelphia's beverage tax, dismissing complaints from the American Beverage Association and local retailers that the levy is unlawful.

The legal victory is the second for the city, which fended off a challenge in December.

Mayor Kenney, who was serving on a jury pool when the court's decision came down, said he was "gratified" by the decision.

"I'm happy they understand how important this revenue is to getting our kids educated and getting our kids out of poverty and changing the poverty narrative in the city," Kenney said as he walked through City Hall's fourth floor with other potential jurors.

In a statement, he urged the coalition fighting the tax, which pays for city programs, not to appeal.

"Two courts have now considered the arguments of the beverage industry and both are certain that the Philadelphia Beverage Tax stands on solid legal grounds. As I stated when the beverage tax was upheld in Common Pleas Court, the children of Philadelphia are waiting for the opportunities that the tax can provide.  Our entire city desperately needs us to be able to move forward with the programs funded by the tax and we will be unable to do that in full until full legal action is resolved."

Shanin Specter, an attorney for the appellants, said they would appeal the decision to the state Supreme Court.

"We are deeply disappointed in today's ruling," said Anthony Campisi, a spokesman for the Ax the Beverage Tax campaign, backed by the beverage association. "But no ruling can obscure the pain Philadelphia's beverage tax continues to inflict on families and local businesses."

In April, seven justices of Commonwealth Court heard arguments in Pittsburgh on whether the city's 1.5-per-ounce tax duplicates the state sales tax, rendering it illegal. Wednesday, the panel published a 5-2 decision affirming the lower court's ruling.

Arguments centered on whether the levy amounted to a double tax. State law prohibits Philadelphia from enacting taxes on items or transactions the commonwealth already taxes. The beverage tax is levied on distributors who sell and transport beverages to dealers for retail sale.

Attorneys representing the appellants argued that because the cost is passed on to consumers at the register where they also pay sales tax, that consumers are taxed twice. The attorneys argued the city is simply shifting the tax up the distribution chain to make it appear different.

Commonwealth Court Judge Michael Wojcik, who wrote the opinion affirming the lower court's decision, rejected that argument.

"The PBT is not imposed on the ownership of the sugar-sweetened beverages or on their sale; rather, it is only imposed if the beverages are supplied, acquired, delivered, or transported for purposes of holding them out for retail sale in the city," Wojcik wrote. He said the legal reading of the tax does not concern "the post-tax economic actions. … In sum, the trial court did not err in determining that the city was empowered to enact" the tax.

In a minority opinion, Judge Anne E. Covey said the tax should be looked at as a whole. While it's levied on distributors, it's passed through to people buying at the register, she said.

"While I acknowledge that the PBT does not appear to be duplicative of the sales tax because it is not explicitly labeled a retail sales tax, the majority ignores that the PBT is only triggered when there is a retail sale involved," Covey wrote.

Danny Grace, secretary of Teamsters Local 830, which represents beverage bottlers and drivers, said his members were disappointed by the ruling. He called the tax "reviled and discriminatory," and said the union has already seen 155 members lose their jobs due to tanking beverage sales.

The 1.5-cent-per-ounce tax will fund Kenney's pre-K program and community schools, and help pay to rebuild parks and recreation centers citywide. While the tax is in litigation, the city has said it will not expand its pre-K program beyond  2,000 seats, and will delay taking out a bond to help rebuild parks.

The victory for the city comes five months into the tax's implementation. The city said this week the tax will bring in less than anticipated in its first six months. The levy has already raised $25 million, though, and city officials said they expect to bring in the $92 million needed for the programs in fiscal year 2018.

Staff writers Claudia Vargas and Tricia L. Nadolny contributed tot his article.