No Sweet Deal

phone pictures 019I love my adopted home of the Pacific Northwest, and very much enjoy my time in Seattle.  But if I’m honest, I do occasionally scratch my head in disbelief at some of our city’s politics.  This week I’ve been doing just that.

By a vote of 7-1, the Seattle City Council this week approved an ordinance (subsequently signed by Mayor Ed Murray) imposing a tax on the privilege of distributing sweetened beverages in the city.  If that last sentence sounds tongue-in-cheek or like I’m being facetious, I assure that it isn’t and I’m not.  The actual language of the relevant portion of the Ordinance states that it is a “general excise tax on the privilege of conducting certain business within the city.  It is not a sales tax or use tax or other excise tax on the sale, consumption, use, or gross receipts of sweetened beverages.”  So, yeah – it is a tax on the privilege of distributing the beverages within the city.

Of course, what the Ordinance actually represents is an increase in the wholesale cost of sweetened beverages sold within the city.  That increase will be first borne by retailers (as distributors pass it along to their customers) and then actual consumers.

Since I’ve been honest about occasional frustration with city politics – let me continue this spate of fidelity by saying that the city’s stated aims of (and within) the Ordinance are logically inconsistent with its imposition.  The Ordinance mixes statements about the contribution of sweetened beverages to childhood obesity and other health concerns with statements about student achievement, opportunity gap and other very real challenges which disproportionately affect our minority communities.  These are both significant issues – and the Ordinance suggests that the funds raised through the tax will be used to address these concerns.

But let’s suppose for a moment that the Ordinance is successful in reducing the consumption of sweetened beverages – and therefore results in a reduction of health problems arising from consumption of sweets.  Wouldn’t that reduce the revenue generated by the tax thereby reducing the ability of the city to use those funds to address the social ills articulated within the Ordinance?  Conversely, assume that the Ordinance fails to reduce consumption of sweetened beverages – maybe even that consumption increases despite the Ordinance.  Wouldn’t that generate a lot of tax revenue for the city to address these social ills but come with a concomitant increase in the health problems related to excessive sugar consumption?  Put another way, is there any way that the Ordinance can actually achieve both of its stated aims of addressing the health issues and the social issues?  As a recovering college philosophy major, I’m struggling with this more than just a bit.

So how does any of this relate to Hooch?

In fact, the Ordinance specifically excludes alcoholic beverages from this new tax.  So that liqueur you’re enjoying won’t be subject to increased tax.  But then again, we don’t always drink our Hooch neat do we?  We might even enjoy a cocktail or two every now and again.  And that’s where the Ordinance kicks in.

The Ordinance doesn’t just attack cola – so don’t think that by switching from a Cuba Libre to some other cocktail you’ll successfully avoid it.  Instead, the Ordinance covers nearly every beverage intended for human consumption which contains “caloric sweeteners” – whether in bottles, prepared for concentrates, served as a fountain beverage or in any other form.  A couple of things are worth noting there.

First, intense debate at the Council resulted in diet drinks being excluded from the Ordinance.  This should result in my daily afternoon diet soda staying the same in price – but in fact I doubt that we’ll begin to see two-tiered soda pricing any time soon and should instead anticipate that all sodas will increase in retail cost.

Second, a lot of mixers are going to be hit by this.  Locally we have several excellent small manufacturers of nonalcoholic mixers (e.g., Rachel’s Ginger Beer and  & Tonic). What do you suppose is the aggregate impact these two companies have had on the growth in childhood obesity?  I’m guessing zero.

But both companies include sugar in their formulations and appear to be within the scope of the Ordinance.  So both companies should expect that anyone distributing their products within Seattle will begin to pass along a tax of $0.01 per fluid ounce ($0.0175 per ounce if they’re fortunate enough to have worldwide gross income in excess of $5 million in the prior year) on their products.  And consumers can expect to pay at least $1.28 more for that 4 pack of white peach growlers from RGB. [Note: if consumers buy directly from the manufacturer, the tax can be avoided – so buy your white peach growlers from the RGB store in Pike Place Market instead of a third-party.]

As a last item, note that if you’re a small manufacturer and you want to avoid imposition of the tax, you may be able to do so.  The Ordinance contains a provision allowing for manufacturers with less than $2 million in annual worldwide gross income to obtain a certificate from the City which exempts them from the tax.  If this is your business, stay tuned for rules to be established by the City on how to get that certificate – you’re going to want to be able to provide it to your distributor.


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