What is a Soda Tax? - Top Accounting Degrees

A consumer who enjoys carbonated drinks may end up with an unexpected surprise at the cash register or on their restaurant bill, leading them to ask, “What is a soda tax?” Also called a sugary drink tax, carbonated beverage tax or pop tax, it is a tax levied by a taxing authority, much like the taxes on beer, wine, liquor, tobacco products and other products. Becoming familiar with what the tax is could help consumers with the understanding of why this type of tax is gaining in popularity.

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What Constitutes a Soda Tax

In the United States, as of late 2019, there are currently six cities that tax sugary sodas and one city that taxes all types of soda. The tax on soda is a type of excise or “sin” tax. The taxes are enacted based on the volume of the drink. In all of the places that have a tax on soda, it is the responsibility of the distributor to pay the tax. However, other taxes may apply to sodas, not just the sugary drink tax. Distributors may pass the higher price on to consumers, too.

Places That Have Soda Taxes

The places that currently tax soda include Albany, Berkeley, Oakland, and San Francisco, California; Boulder, Colorado; Seattle, Washington; and Philadelphia, Pennsylvania. Philadelphia has a tax on all types of soda, including those that make use of artificial sweeteners or natural sweeteners other than sugar. The tax in Philadelphia amounts to 2 percent of the city’s self-generated income each year. For the other municipalities, the taxes on soda bring in less than 1 percent of their annual revenue.

How Much the Soda Taxes Cost

For Albany, Berkeley, Oakland, and San Francisco, California, the tax rate is 1 cent per ounce of soda. In Seattle, Washington, the rate is 1.75 cents per ounce of soda. Boulder, Colorado’s tax rate is 2 cents per ounce. Philadelphia’s tax on all sodas is 1.5 cents per ounce.

What Is Done With the Tax Revenue

The municipalities that levy a tax on soda use the revenue for different purposes. According to the Tax Policy Center, Philadelphia uses the funding for educational programs that would not otherwise be funded. Countries such as Hungary use soda taxes to fund public health services. Some additional cities are considering levying taxes on soda on a tiered scale. This would mean a heftier tax rate for a more sugary drink. As the sugar content per volume of liquid goes up, so would the tax rate. Some cities are also considering a more general carbonated beverage tax, which would include taxing diet soda. Cities could also enact taxes on other sugary drinks, including energy drinks and juice.

Conclusion

Although unpopular among people who like carbonated beverages, taxes on sodas are an easy means of revenue for cities and other governmental agencies that need more public health funding or funding for emergency response services, which are directly tied to the health issues that can be caused by over-consumption of sugary drinks. The taxes on sodas are typically not as high as the “sin taxes” levied on alcohol and tobacco, but they do affect the budgets of people who consume soda on a regular basis. Knowing, “What is a soda tax?” could help a person make an informed decision at the grocery store or restaurant.

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