On January 1, Seattle’s "sweetened beverage tax" (CB 118965) went into effect. The ordinance places a tax of $0.0175 per ounce on sugary beverages like soda, sports drinks, iced teas, and "other products with added caloric sweeteners."
There are minor exceptions. If a business earns a "worldwide gross income" between $2 million and $5 million annually, they will be charged only $0.01 per ounce. Additionally, some drinks are exempt from the tax. Beverages "consisting of 100 percent natural fruit or vegetable juice with no added sweetener," beverages containing fewer than 40 calories per 12-ounces, and diet beverages enhanced with zero-calorie artificial sweeteners, will not face the tax, according to Seattle.gov.
The $15 million in revenue expected from the tax increase is already being allocated to various programs such as "Fresh Bucks, Food Action Plan ($2,404,359), 13th Year Promise Scholarship ($1,381,885), Innovation High School, Summer Learning, Summer Melt ($1,004,500), Our Best ($189,000), Parent-Child Home Program ($525,000), and Food Banks ($153,750)," reports KIRO7.
However, according to Daniel Beekman of The Seattle Times, out of the more than $2 million going to the Fresh Bucks program, only about $400,000 "will be spent on produce vouchers." The rest, Beekman writes, will be dedicated to "administrative costs, such as outreach, technology and hiring five additional city employees to carry out the program’s expansion."
As soon as the tax went into effect, Seattle citizens began uploading images to social media showing the price increases on their favorite beverages. KIRO7 Seattle’s Deedee Sun tweeted the following image from Costco:
The price for that Gatorade Frost variety pack increases by a whopping 64.6% after the sugary beverage tax is included.
Costco is even telling its customers how to avoid paying the tax. On a sign next the price tag, the store notes that the same beverages can be found in their "Tukwila and Shorline locations," which are outside the taxed zone.
When Deedee Sun asked city council member Lorena González if the increased tax could damage local businesses and drive shoppers away from the city, the councilwoman replied, "We did not see any data that really shored up the argument that this hurts local businesses."
Health Food America executive director Jim Krieger said, "There’s not a lot of cross-border shopping. People realize it’s not worth my while."
Evidence from other localities paints a different picture. After Philadelphia enacted a sweetened beverage tax of 1.5 cents per ounce in 2017, "carbonated soft drink" sales in grocery stores and drug stores in the city plummeted by approximately 55%, reports CNBC. At the same time, sales of these items outside the city rose by 38%, according to research firm Catalina, which studied the impact of the tax during the first five months of implementation. A Philadelphia city spokesman told CNBC, however, that "supermarkets account for less than half of beverage sales in Philadelphia."
The study also found that bottled water sales rose by 13% in the core part of the city.
PhillyVoice reports that according to a survey from the office of the Philadelphia Controller, hundreds of businesses claim to have been hurt by the sweetened beverage tax:
A total of 650 businesses [out of approximately 750 that responded] reported a decline in year-to-year revenue, including 400 establishments that attributed "most" or "all" of their losses to the 1.5-cents-per-ounce tax. Most of these businesses said the revenue loss was greater than 10 percent and that they had to modify their product lines to adjust to the consumer response.
Roughly 12% said they were operating "as usual." It should be noted that the approximately 750 businesses that responded represent about 45% of businesses to which the survey was offered.
After Cook County, Illinois, enacted a one cent per ounce sweetened beverage tax in August 2017, "Costco’s nine Cook County locations saw a 34 percent decline in sales of beverages affected by the tax ... [and] the chain saw a corresponding increase of 38 percent in sales of sweetened beverages in its nine stores just outside Cook County," chief operating officer of Costco’s northern division, John McKay, told the Chicago Tribune.
The tax was repealed in October and officially ended on December 1, 2017 — just four months after it was enacted.
Only time will tell how the sweetened beverage tax plays out in Seattle, but evidence from other cities and counties shows that businesses are being harmed by similar taxes, and customers are willing to go out of their way to avoid what they view as excessive prices.