Soft-drink tax on hold in Chicago — for now

Store owners, bottlers warn of lower sales, layoffs

Chicagoans are getting a break when it comes to paying a soft drink tax — but it may not last.

A penny-an-ounce soda pop tax was slated to take effect on July 1, but its imposition was put off by a local judge after the state retail merchants association and a group of local grocers challenged its legality. Tuesday, the judge is expected to set a date for a hearing.

The county that’s home to Chicago is one of about a dozen areas around the nation that have instituted a soft-drink tax. These taxes began after the outcry of concern about health effects from consumption of sugary drinks.

Seattle was the most recent, and now Massachusetts is considering becoming the first state to enact one. Philadelphia’s soda tax, which began on Jan. 1, was challenged in state court, but the tax opponents failed and it went into effect.

That makes Chicago the latest testing battleground for the controversial levy.

“Every time one of these is challenged, politically it’s important, because the soda companies try to prevent any municipalities from enacting this,” said Bruce Ledewitz, a Duquesne University law

“Any business will be very concerned about a tax that discriminated against their own customers. This is the worst tax you can pass. It’s highly destructive.” William Dermody, the American Beverage Association’s vice president of policy

professor.

The coalition formed to oppose the Chicago-area tax poses arguments that have become familiar in other cities. Opponents say it violates the Illinois constitution by failing to apply the tax evenly, because some beverages are exempt. For example, the tax there would not apply to sweetened beverages that are made by hand, such as those at a coffee shop.

Municipalities that have similar taxes are paying attention because theirs might be at risk for similar challenges. Each tax around the country is different: Some tax diet sodas. Others don’t. But the underlying principles of what a local government can choose to tax and the wording of the laws are universal.

Local store owners, soda companies and bottlers worry about whether the taxes will drive down sales. Beverage manufacturers have warned of layoffs at factories and trimming drivers’ routes.

“Any industry doesn’t want anything that increases the costs of their products outside their control, like a tax. They also don’t want anything that puts their products in a bad light,” said Ivan Feinseth, director of research at Tigress Financial Partners.

Chicago isn’t the only city where a challenge is underway. Shanin Specter, a lawyer for opponents to Philadelphia’s tax, said his clients plan to file a petition requesting review by the Pennsylvania Supreme Court this week.

For local governments that have crafted budgets based on anticipated revenues from these taxes, a legal challenge could mean having to make serious cuts. For example, Cook County’s public defender Amy Campanelli on Friday emailed her staff to say that job cuts were coming.

She told them the county is preparing for “a worst case scenario in which none of the revenue will be available,” she wrote.

Proponents point to soft-drink taxes as a way to plump up stretched-thin government budgets. In some cities, the revenue is earmarked for parks or other programs. Others argue such taxes will dissuade people from buying sweetened beverages, a behavior modification public health experts say could reduce obesity.

On the other side of the issues are those who say that the tax will not modify behavior but will hurt local businesses. Municipalities need to find other sources of funding to meet their budget shortfalls, they argue.

“Any business will be very concerned about a tax that discriminated against their own customers,” said William Dermody, the American Beverage Association’s vice president of policy. “This is the worst tax you can pass. It’s highly destructive.”

“Every time one of these is challenged, politically it’s important because the soda companies try to prevent any municipalities from enacting this.” Bruce Ledewitz, a Duquesne University law professor