City: Soda tax brought in $5.7 million in January, more than double expectations

The city received $5.7 million in collections for the first month of the sweetened-beverage tax, more than double Revenue Department projections but less than the city needs in coming months to reach its goal, officials said Thursday.

The city had projected bringing in $2.3 million in January, which assumed that businesses would be slow to register for the new tax and that some retailers might have stocked up on pre-tax products.

To meet its target of $91 million per year, the city will need to increase its intake to $7.7 million by its April collection, maintain those numbers, and pull in about an additional $7 million in unpaid taxes for the rest of the year. The figures are important if the Kenney administration is to be able to continue financing its ambitious expansion  of early childhood education in the city.

The 1.5 cent-per-ounce tax is levied on distributors, 380 of which have registered with the city to pay the tax.

The city released its numbers the day after an opposition group launched an “Ax the Bev Tax” campaign, amid complaints from some beverage sellers of sales losses as high as 30 percent to 50 percent.

Opponents of the tax said the administration's earlier estimates seemed low and noted that even at the current collection rate, the city will still fall short of its goals.

"Ultimately, the only number that matters is $91 million," said Alex Baloga, vice president of external relations for the Pennsylvania Food Merchants Association. "The $5.7 million doesn’t get you there."

The administration was dismissive in return.

“The Budget Office’s projection of $2.3 million was intentionally conservative, because this is a new tax, and it was difficult to determine the extent, if any, of issues that taxpayers would have in filing for the first month,” city spokesman Mike Dunn said. “It is ironic that the industry, which has been saying for a year that we wouldn’t be able to fund the programs, is now accusing us of being too financially responsible.”

Dunn said the city expects consumers who have been buying beverages outside the city to avoid the tax to ultimately return. In doing its calculations, the administration assumed a 27 percent drop in beverage sales in the city as a result of the tax. 

Some retailers and distributors have reported much higher losses in the first two months of the tax and say layoffs are expected.

Jeff Brown, who owns six ShopRite stores in the city, said this week that he expects to shed about 300 jobs due to losses in sales. He doubled down on that claim Thursday.

Hours have been cut so severely, he said, that he expects employees to leave on their own and others to be laid off.

“I think my estimates are right on," he said. "There’s no way of knowing the layoff number, but 280, 300 jobs will be gone one way or the other. If a person quits or goes on unemployment, or I lay them off, the jobs will be gone.”

Restaurants say the effect of the tax has been far less intense.

“We haven’t seen that much of an impact,” said Melissa Bova, vice president of government affairs for the Pennsylvania Restaurant and Lodging Association. “When people go out, they’re going to get the soda no matter what — the problem is the cost of buying the product has gone up, so they’re trying to find a way to not pass on the entire cost to the customer.”

The biggest hit has been on fast-food chains increasing their prices to account for free refills.

A five-gallon bag of syrup used in fountain soda costs $60 and is taxed at $57, Bova said.

 

The tax,  under appeal in Commonwealth Court, funds pre-K and community-school programs. The city hopes to add 2,000 pre-K seats in the fall but will follow through with that plan only if the tax is no longer in litigation. A $300 million bond to rebuild parks and recreation centers is also on hold while the case is active.

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