There’s an evergreen economics lesson to be found in a June 14 Commonwealth Court ruling. Unfortunately, it came in a soon-to-be-forgotten dissent to a majority ruling that rationalized illegal double taxation.
A panel of the intermediate appellate court, voting 5-2, upheld Philadelphia’s controversial 1.5-cent-per-ounce tax on sugary drinks. The tax is levied on distributors.
The American Beverage Association and a number of Philadelphia retailers sued the city. They claimed the Philadelphia Beverage Tax (PBT) amounted to double taxation, which is prohibited by state law. Philadelphia Common Pleas Court previously upheld the statute. The plaintiffs say they’ll appeal to the state Supreme Court.
The appellate court panel, in a majority opinion written by Judge Michael Wojcik, the former Allegheny County solicitor, agreed with the trial court. He wrote, in part:
“The PBT is not imposed on the ownership of the sugar-sweetened beverage or on their sale; rather, it is only imposed if the beverages are supplied, acquired, delivered, or transported for purposes of holding them out for retail sale in the city.”
If that strikes eagle-eyed readers as jurisprudential hocus-pocus (yes, the oxymoron was intended), go to the head of the class. As should Commonwealth Judge Anne Covey. In a gobbledygook-eschewing dissent, joined by Judge Renee Cohn Jubelirer, Covey argued that Philadelphia’s sweet-drink tax cannot be viewed in isolation. Neither, it should be added, can it be viewed in economics ignorance.
The evergreen economics lesson? While indeed Philly’s sweet-drink tax is levied on distributors, it continues to be the consumer – the general public buying the product, not the retailer buying from the distributer –that ultimately pays the tax.
Which indeed means the consumer is taxed twice on the same product, in violation of state law.
As Judge Covey put it: “While I acknowledge that the PBT does not appear to be duplicative of the sales tax because it is not explicitly labeled as a retail sales tax, the majority ignores that the PBT is only triggered when there is a retail sale involved.”
Consider it a loose version of the Bastiatian “seen and unseen”: The Commonwealth Court majority observes the seen – a tax on distributors. But the dissenters also observe the unseen – the same consumers who pay the sales tax pay the passed-through distribution tax.
That fact, by the way, is why such drink sales have fallen in Philadelphia. Consumers, faced with higher prices, are buying fewer sugary drinks (at least in Philadelphia proper). That has resulted in a number of jobs being lost at the distribution and retail level. And it’s why the city government’s projected receipts from the tax are falling quite short.
Referencing language of the Philadelphia Beverage Tax, Covey writes “that the tax can only be imposed in relation to the retail sale of sugar-sweetened beverages.
“Accordingly, the PBT implicates both supply and sale at retail, making PBT a duplicative tax,” Covey wrote.
And she continues, again, citing the clear language of the Philly law:
“Contrary to the majority’s conclusion that the PBT is a ‘distribution’ tax, the PBT is a tax imposed only where the sugar-sweetened beverage is sold or intended to be sold at retail, and the PBT is imposed regardless of whether there is a distributor involved.”
Back to Bastiat. That would be Frederic Bastiat, the 19th century French economist, statesman and author. He reminded in the conclusion to his classic “Economic Sophisms”:
“To rob the public, it is necessary to deceive it.”
That is what the Philadelphia Beverage Tax does. It is what the majority of a Commonwealth Court panel has upheld. But it is what Judge Covey necessarily exposed.
Colin McNickle is a senior fellow and media specialist at the Allegheny Institute for Public Policy (cmcnickle@alleghenyinstitte.org).
