How the Soda Tax Could Affect Your Restaurant

By: Kendal Austin

6 Minute Read

Apr 03, 2018

City Sky Boardwalk Urban Min 705996 Edited

restaurant soda tax

Taxation on sugar-sweetened beverages (SSBs), commonly dubbed the "soda tax," has been a hot topic in recent months.

Public health officials argue that the tax generates revenue and ultimately improves, well, public health. Retail organizations and restaurants are outraged by the potential impact that a decrease in soda sales would have on their bottom line.

New Updates: The Soda Tax Repealed

The debate over the soda tax flared up this month in Cook County, Illinois - the largest jurisdiction to impose the tax to date. After narrowly approving the tax in November 2016, Illinois officials voted to repeal the soda tax earlier this month in the wake of passionate rallies and aggressive ad campaigns.

Retailers in Cook County, which includes the city of Chicago, fought hard against public health officials and politicians and celebrated the revocation.

The SSB tax has been on the minds and the ballots of citizens in cities around the country. To date, seven other American cities have enacted the tax with varied results.

Municipalities with a Soda Tax

Updated as of October 17, 2017.

  • Berkeley, California - The pioneers of the soda tax concept. $0.01 per ounce, excludes diet sodas.
  • Philadelphia, Pennsylvania - $0.015 cents per ounce, includes diet sodas. See what Philadelphia restaurants are saying about the tax.
  • San Francisco, California - $0.01 per ounce, to take effect on January 1, 2018.
  • Oakland, California - $0.01 per ounce.
  • Albany, California - $0.01 per ounce.
  • Boulder, Colorado - $0.02 per ounce.
  • Seattle, Washington - $0.017 per ounce.
  • Cook County, Illinois - $0.01 per ounce [Repealed October 11, 2017].

Here’s a look at both sides of this debate and the impact that it’s had on restaurants.

The Pro-SSB Tax Arguments: Why the Soda Tax Makes Sense

Healthy Living

In 2009, the American Heart Association reported that soft drinks and sugar-sweetened beverages are the largest contributors of added sugars in Americans' diets.

Advocates of the soda tax say it will encourage consumers to make healthier choices and that the money would generate much-needed revenue for local governments. In some cities, for example, the money would fund public health programs.

The SSB tax has proved effective in slashing the affected areas' soda consumption. In 2014, Berkeley, California became the first city in the U.S. to enact a tax on sugary beverages for the purposes of public health. The tax resulted in a 20% decline in the consumption of sugary drinks year-over-year.

taxing soda(Via Helathy Food America)

“The Berkeley tax is a home run—it helped residents make healthier choices, it raised revenue for promoting health, and we saw no evidence of higher grocery bills for consumers or harm to local business revenue,” said one researcher at the Public Health Institute in Oakland, California.

As seven out of ten adults are trying to eat healthier in restaurants, this soda tax may not impact a large portion of your guests, potentially leaving your bottom line unaffected.

Reducing Healthcare Costs

Public health officials have argued that the soda tax would ultimately reduce the costs falling to taxpayers for higher healthcare from unhealthy diets.

"(Taxpayers) will continue to cover the rising costs of treating the chronic diseases caused by drinking too many sugary beverages while also seeing cuts to health care services for our most vulnerable communities," Elissa Bassler, CEO of the Illinois Public Health Institute, said in a statement after Cook County’s soda tax was repealed.

Decreased soda consumption is good news for public health, but maybe not so much for retailers.

The Anti-SSB Tax Argument: Why the Soda Tax Doesn't Work

Restaurants Could Make Less Money

Fountain soda is an extremely high-margin item, one that many restaurants rely on heavily.

While soda consumption in restaurants has been on the decline even without a tax imposed, many retailers say a sugar tax will further hurt their bottom line.

graph of soda consumption(via Fortune)

Soda sales totaled $181 billion in the foodservice industry last year. David Henkes, a senior principal at Technomic reported that “beverages account for $1 out of every $5 consumers spend away from home.”

Depending on the municipality, the soda tax could be imposed on the distributors, retailers, or passed on to the customers themselves. Either way, taxation discourages soda purchases and retailers could take even more of a hit on a crucial revenue stream.

We Don't Know Where the Money is Going

Josh Kim, owner of Spot Burgers in Philadelphia, told us that he doesn’t buy the argument that funds from the tax will support public programs in Philadelphia.

“The soda tax, in my opinion, is a ruse to fool the people into believing that the tax is for universal Pre-K,” he said. “According to the legislation, a very small portion of the tax revenue will go to fund universal Pre-K, about 5%. The rest will go to the general fund. In short, the city is broke and this is their way of pulling the wool over our eyes in order for them to fulfill pensions, increase bureaucracy, and fund pet projects.”

People Don't Want One

Some officials have questioned the sheer legality of such a tax. Tanya Triche, VP and General Council of the Illinois Retail Merchants Association, argued the legal repercussions of taxing items on top of standard sales taxes.

"This is a tax on a tax, what is being imposed today," Triche told the Chicago Tribune before the tax was repealed in Cook County. "We don't even think that's lawful to do in the state of Illinois."

On October 11, officials in Cook County overwhelmingly agreed.

How would a SSB tax impact your restaurant? Tell us in the comments.

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DISCLAIMER: All of the information contained on this site (the “Content”) is provided for informational purposes only and not for the purpose of providing legal, accounting, tax, career or other professional advice. The Content is provided “as-is” without any warranty of any kind express or implied, including without limitation any warranty as to the accuracy, quality, timeliness, or completeness of the Content, or fitness for a particular purpose; Toast assumes no liability for your use of, or reference to the Content. By accessing this site, you acknowledge and agree that: (a) there may be delays in updating, omissions, or inaccuracies in the Content, (b) the Content should not be relied upon or used as a substitute for consultation with professional legal advisors, (c) you should not perform any act or make any omission on the basis of any Content without first seeking appropriate legal or professional advice on the particular facts or circumstances at issue and (d) you are solely responsible for your compliance with all applicable laws. If you do not agree with these terms you may not access or use the site or Content.