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September 14, 2016

Philadelphia soda tax faces court challenge

Lawyers for several beverage associations — and others — say the new law amounts to double-taxation

Philadelphia's new sugary drinks tax is headed to court.

The wildly divisive tax is challenged in a lawsuit brought by the American Beverage Association, the Pennsylvania Beverage Association, the Pennsylvania Food Merchants Association and others who claim it is "unlawful." 

In an interview Wednesday, Shanin Specter of the Kline and Specter law firm in Philadelphia — who filed the lawsuit with the Morgan, Lewis and Bockius law firm — said the legal action seeks to void the recently-enacted tax. 

"When it was discussed in [City] Council, they felt that if it was illegal, the court would say so," said Specter. 

This suit, he said, is intended to give the court an opportunity to do just that. 

According to court documents shared by Specter's firm, the plaintiffs in the lawsuit include soda consumers and restaurants, including John's Roast Pork and City View Pizza. They believe the soda tax will essentially duplicate the current state sales tax on the purchase of sodas and other sugar-sweetened beverages. 

As signed by Mayor Jim Kenney earlier this year, the law would tax sodas and beverages with added sugar at a rate of 1.5 cents per ounce. The tax, scheduled to go into effect on Jan. 1, would be levied on distributors of the products, and not directly on consumers. 

The tax is expected to bring in about $91 million annually, new revenue that would be spent mostly on Kenney's pet initiatives, including universal pre-K, a community schools plan, police body cameras and revitalization of civic spaces throughout the city.

The lawsuit claims Philadelphia is "expressly prohibited from taxing subjects and property" that is already taxed by the state. By placing the tax onus on distributors, and not customers directly, the plaintiffs claim the city tried to "skirt" this issue, according to court documents. 

The suit further notes that, if such a practice is allowed to continue, thousands of other products — over-the-counter drugs and cars, included — could be taxed similarly in communities throughout the state. 

Specter said there is no court date scheduled yet on the legal challenge. But he said he believes the case will be taken up sooner rather than later.

"I think the city and the courts would want to do this quickly," he said. 

After the announcement of the suit, Teamsters Local 830 released a statement in support of the lawsuit, with the union's secretary and treasurer, Danny Grace, saying the tax was always opposed by a "majority" of Philadelphians. 

""Not only is this tax bad for the Teamsters, it is opposed by nearly 60 percent of Philadelphians. In the coming months, as the wheels of our judicial branch turn, it is our hope that the rights of Teamsters and all hardworking Philadelphians will be protected," Grace said in a statement. 

The Philadelphians Against the Grocery Tax Coalition, which long opposed the sugar-sweetened drinks tax, shared a statement in support of the lawsuit and included praise from members of the coalition. 

“We stand fully behind this lawsuit,” said Gina DiSanto, president of the National Association of Theater Owners of Pennsylvania, in the statement. “Movie theaters make most of our profits from concession stand sales. This tax will force theaters to raise their concession prices and make it more expensive for families to spend quality time together doing something they love.”

However, on Wednesday afternoon, Mayor Kenney and City Solicitor Sozi Pedro Tulante, released a statement on the lawsuit, both saying that they believed the tax was appropriate and would hold up in court. 

“We are ready and prepared to vigorously defend this legislation and to protect the historic investment planned for Philadelphia’s neighborhoods and education system,” said Tulante. “We have always been confident that the Sweetened Beverage Tax was a proper exercise of City Council’s authority and that it will be upheld in Court. We are currently in the process of reviewing the complaint that was filed against the City of Philadelphia by the American Beverage Association and co-plaintiffs this morning in the Court of Common Pleas. We have retained former City Solicitors Ken Trujillo from Chamberlain Hrdlicka and Mark Aronchick from Hangley Aronchick Segal Pudlin and Schiller to join the City’s litigation team."

In replying to the suit, Kenney called the attempt to void the sugary drinks tax "repugnant." 

“Pre-K, community schools and improved parks, rec centers and libraries will give Philadelphia’s children the fair shot they deserve. While it is repugnant that the multi-billion-dollar soda industry would try to take away these educational and community programs from the hundreds of thousands of Philadelphians who need them, we were not surprised by their lawsuit given the ten million dollars they have already spent opposing the tax. I have no doubt we’ll be successful in defeating the lawsuit”