Crossposted on Contra Costa Lawyer
As we enter the season of relentless political ads, the measure dubbed the “Richmond Soda Tax” serves as a good example of what happens when the media meets proponents of a measure and their consultants. Reality often has no major role in the game of politics. Instead, staking out your position first and having great sound bites can make the difference in winning the modern war of words and images.
The Richmond Soda Tax includes all the elements needed to attract the kind of media coverage that is critical to the success of a measure. The initial argument focused on the impact of soda on childhood obesity and how this “tax” would deter consumption of dreaded sugary drinks. The proceeds from this “tax” would be used to fight childhood obesity through a laundry list of well-intended options. This sounded like the perfect “sin tax” and the bonus was that it was “for the children.” The press ran with it, but as with so many things in the law (and politics), the devil is in the details.
Key Details of Richmond’s Proposed Business License Fee
- It is not a “tax” in the traditional sense. Rather, it is a business license fee levied at the rate of “one (1) cent per ounce of sugar-sweetened beverage served, provided, or traded by businesses in the City.”
- The business license fee is paid by the vendor, unlike a traditional “sin tax” that is paid by the actual consumer whose behavior is being targeted. It is an open question how (or if) vendors in Richmond will seek to recover this cost and who will actually end up paying.
- The business license fee is not limited to soda. If that were the intention, the ordinance could have been drafted to include the word “carbonated.” Instead, the measure will apply to a broad range of beverages sweetened by sugar in any form (e.g. sucrose, fructose, etc.). Nor is there any amount or proportion of sugar specified in the ordinance. So included under the business license fee will be drinks like Starbucks flavored drinks, Arizona Iced Tea, V8 Fusion, and the list goes on and on. Check the label of your favorite beverage – if sugar is an ingredient, it will likely be covered.
- There is no requirement that the proceeds of this fee go to anything related to children or fighting obesity. While there is a companion measure on the ballot that asks if the proceeds should be used for things like after school programs, sports fields, school meals, nutrition and cooking classes, and medical care, the measure is an advisory vote only. The Richmond City Council will ultimately be free to use the money however it likes.
- This measure would place a significant financial burden on retailers, particularly small ones, that could put them at a competitive disadvantage to those in neighboring cities. For example, a 24-can case of Pepsi (full disclosure – I am a Pepsi fan, but I drink Diet Pepsi) can cost $5-$10. The one-cent per ounce business license fee would cost a retailer $2.88. As with all business expenses, that additional cost will have to be recovered by the business somehow.
This measure fails as a sin tax
It is unlikely that consumers of sugary beverages will directly pay the cost of the proposed business license fee. Each vendor could raise prices on covered items or simply spread the total cost across all products and customers. The latter is much more likely given the respective burdens. Will vendors really want to reprogram their systems to charge one price for a Diet Pepsi and a higher price for a Pepsi with sugar? For products that do not have a sugar-free equivalent, it might be easier to build in the charge directly. But what about self-serve drink dispensers found in some restaurants, convenience stores, and movie theaters? No one is going to stand by the drink dispenser to see if you pour yourself a sugary drink and then ask you to pay up. If these businesses tried to recoup their license fees by asking customers which drink they poured, customers might lie to avoid paying extra.
It is misleading as to the use of the revenue
It is going to be difficult for the opponents to counter the way these measures have been framed in the press as a “soda tax to fight childhood obesity.” Anyone who reads the laundry list of potential uses of the money in the advisory measure will find something to identify with, regardless of whether any notable number of these worthy projects could actually be funded by the “tax.” But as explained above, the accompanying advisory measure is for advisory purposes only, leaving the Richmond City Council free to spend the money however it chooses.
This measure is missing the intended target
If childhood obesity is the target, banning soda from schools altogether would be a better tactic. Or why isn’t something like pizza a better target for combating childhood obesity? Pizza is eaten in large quantities by children. Pizza would be easier to tax directly, rather than through a business license fee, and reducing its consumption might help curtail both heart disease and obesity in children and adults.
The answer is obvious: sugary beverages are an easy target and a “soda tax” is an easy sell. More importantly, cash-starved cities are always looking for new revenue sources and they think they may have found one in the soda tax that isn’t. Welcome to the real world of politics.