Philly Beverage Tax War rages on

Fri., September 22, 2017 City of Philadelphia

Beverage Association says supermarkets losing $300K per month; City says increase in wage tax collections shows jobs have not been lost

The Great Philadelphia Beverage Tax War rages on.

According to the American Beverage Association, Philadelphia’s beverage tax is costing supermarkets $300,000 a month in lost sales as consumers head to retail locations outside of the city where the tax does not apply, reports the Philadelphia Tribune.

Yet, according to the City of Philadelphia, the second quarter of 2017 showed continued strength in Philadelphia Wage Tax collections from businesses related to the distribution of beverages in the city, according to figures released by the Department of Revenue. Translation:  no negative impact on jobs.

Enacted January 1, Mayor Jim Kenney proposed the controversial beverage tax as a revenue-raising measure for pre-kindergarten education. Initially, Kenney sought a 3-cents-per-ounce tax but ultimately the final tax levies a 1.5-cents-per-ounce beverage tax, which by some estimates, impacts about 4,000 beverage products—not just soda.

The Greater Northeast Philadelphia Chamber of Commerce opposed the tax.

A new study by John L. Stanton, an expert in food marketing at the Department of Food Marketing of the Saint Joseph’s University Haub School of Business, found that total beverage sales in five Philadelphia supermarkets dropped by more than $80,000 each month. However, the loss in sales is not limited to beverages.

“The average monthly loss in sales per Philadelphia store of $304,433 will lead to some reduction in labor force,” Stanton said.

Not so, counters the city.

“Repeated claims about job loss because of the beverage tax are not borne out by the wage tax collections in that sector,” said City Revenue Commissioner Frank Breslin.  “The collections are not just steady, they are growing, and growing at a stronger pace than all sectors combined.  This is particularly heartening one week after 2,000 children started or returned to pre-K programs funded by the beverage tax.”

Grocers like Jeff Brown, president of Brown’s Super Stores, which operates 13 ShopRite stores in Philadelphia, told the Pennsylvania Senate Local Government Committee in written testimony that the thousands of products impacted by the beverage tax include sports drinks, flavored waters and nutrient enhanced drinks.

“The beverage tax has cut beverage sales by half at our 13 ShopRite stores in the city and created storewide sales drops that vary from 10 percent to a whopping 25 percent,” Brown said, adding that in six of his 13 stores, overall sales were down an average of 15 percent, and beverage sales were down nearly 60 percent since the tax took effect in January.

“We know that shoppers are going outside the city to buy their beverages and they are taking all their grocery dollars with them,” Brown said.

In the second quarter of calendar year 2017, city wage tax receipts from beverage-related industries were up by 4 percent compared with the second quarter of 2016 (from $23.2 million to $24.1 million).  This was part of a strong six months (January – June 2017) that showed wage tax collections from the beverage-related sector grew 5.8 percent compared to the same period last year.

In fact, the wage tax growth for beverage-related industries outpaced the overall six-month growth for all industries (5.5 percent).  Accounting for ongoing wage tax rate reductions, the growth in actual wages and salaries paid to employees in these sectors was even higher.

Among the specific subsectors that showed growth in wage tax collections for the first two quarters of 2017 were supermarkets, convenience stores, full service restaurants, take out restaurants, bars and taverns, department stores and superstores, vending machine companies, and wholesale groceries.

Meantime, the economic benefits of pre-k were further substantiated by the Commonwealth’s Independent Fiscal Office (IFO).  In a new report, IFO says that spending on early childhood education created a tremendous ripple effect: more than a billion dollars in new economic activity.

Jeff Brown sees a reduced labor force in area supermarkets due to the tax.

“There is almost no scenario that would lead one to believe that the Philadelphia Beverage Tax will permit taxed supermarkets to maintain existing labor forces. Furthermore, the decline in supermarket sales will negatively impact distributors and other channels of distribution companies serving those supermarkets. While the reduction in force may take a few months to reach an equilibrium level, a labor reduction seems inevitable,” he said.

The loss of sales in Brown’s ShopRite stores has also been met with a decrease in labor. “We are cutting back hundreds of work hours and not filling open positions,” Brown wrote. “I have 210 fewer associate positions in my stores this year as a direct result of the beverage tax. And I’m not alone. This trend is happening at stores around the city.”

“(The Stanton) study confirms our worst fears and highlights the struggles supermarkets across the city have been facing every day this unfair tax has been imposed on them,” Dave McCorkle, president emeritus of the Pennsylvania Food Merchants Association, said in a news release.

“At a time when food retailers were already confronting headwinds from online shopping and other changes in consumer behavior, this tax is dealing a death blow to an industry that provides access to groceries for families in low-income neighborhoods,” McCorkle added. “Our elected officials need to recognize the existential threat this tax poses for an industry that employs thousands of Philadelphians in family-sustaining jobs.”

“The IFO’s findings reflect what we’ve seen here in Philadelphia following the launch of PHLpreK,” said Chief Education Officer Otis Hackney. “Investing in free, quality early childhood education enables parents to go back to work, creates new teaching and support staff jobs in pre-K centers, generates work for contractors who build new classrooms, and produces a significant cost savings in special education. We are confident that Philly will see long-term economic benefits from investing in quality pre-K – and in the meantime we’re also feeling the immediate benefits. Early childhood education is a powerful and worthwhile investment.”

The IFO was created by the state Legislature to provide both revenue projections and analysis of fiscal, economic and budgetary issues to assist Commonwealth residents and the General Assembly in their evaluation of policy decisions.

, , ,

Sign up for our Newsletter