State Supreme Court hears arguments on sweetened beverage tax

Pat Loeb
May 15, 2018 - 2:53 pm
Left: City attorney Mark Aronchick. Right: Harold Honickman, one of the city's largest private bottlers.

Pat Loeb | KYW Newsradio

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PHILADELPHIA (KYW Newsradio) — The two-year legal battle over Philadelphia’s sweetened beverage tax entered its final stage as the Supreme Court of Pennsylvania (SCOPA) heard conflicting arguments from attorneys for the city and the beverage industry over whether the tax violates state law.

The soda industry has been appealing the tax since it was passed in June 2016. Two lower courts ruled against it but SCOPA agreed to consider one final question: Does the tax violate the Sterling Act, a state law passed in 1932 that prohibits the city from taxing anything the state already does?

The arguments revolved around whether the tax on the distribution of sweetened beverages intended for retail sale in Philadelphia is, in essence, a sales tax, which the state already collects.

“Can the city get around the Sterling Act by shifting collection one level higher, to the distribution chain?” soda industry attorney Mark Sonnenfeld asked rhetorically, before answering his own question with a “No.”

Justice Max Baer, though, told Sonnenfeld, “The argument is not did they do this artfully to get around the Sterling Act, but did they succeed?”

The city’s attorney, Mark Aronchick, did not take up that question specifically but made the case that distribution activities — acquisition, supply, transportation and delivery — represent a business activity different from retail sales, a business the state could tax but does not.

He also argued that the soda industry is misinterpreting the Sterling Act as a law meant to restrict what the city can tax. Quite the opposite, Aronchick argued, the law — passed in 1932, in the depths of the Depression — was meant to give the city the power to tax whatever the state didn’t as a way to combat the economic turmoil of the era.

“It was put in place so Philadelphia could save itself,” he said. “The general assembly said, 'Take care of your own problems with your own tax base.'"

In an interview after the arguments, Aronchick compared Philadelphia’s high poverty rate with Depression-era problems.

“Philadelphia has stepped up to the plate and is doing yeoman’s work in trying to take care of those problems,” he said. “Can you imagine something more important than making sure that pre-K is available than taking care of our infrastructure, community schooling? These are the challenges of 2018.”

The tax on sweetened beverages — 1 1/2 cents per ounce — is earmarked for expanding pre-K and community schools and the Rebuild program for parks, recreation centers and libraries. 

The tax has brought in $90 million in the first 15 months that the city’s collected it. The city has held most of the money in reserve, though, in case of an adverse SCOPA ruling that might force it to return the revenue.

The judges gave no obvious sign of how they were leaning on the question. The one noticeable trend was that only Justices David Wecht, Christine Donohue and Max Baer — all elected as Democrats — asked questions of the attorneys.

Justice Kevin Dougherty was not present for the arguments. No reason was given. Dougherty received a $5,000 campaign contribution from local Pepsi bottler Harold Honickman, who was in the courtroom for the arguments. Dougherty also received support from the electricians union, led by his brother John Dougherty, which will benefit from the jobs created by the Rebuild program.

Dougherty’s recusal means the case will be determined by just six justices, leaving open the possibility of a tie.