Food & Beverage

Philadelphia's soda tax isn't the windfall some had hoped for

Key Points
  • Philadelphia introduced a tax on sugary drinks Jan. 1.
  • The tax has generated revenue of $39.3 million, or about 15 percent shy of the original projection of $46 million.
  • Sales of carbonated soft drinks, the largest sweetened beverage category, fell 55 percent inside the city, according to a study from Catalina. Just outside it, sales rose 38 percent.
Philadelphia's soda tax isn't the windfall some had hoped for

Philadelphia's soda tax is falling flat — for the city, at least.

The city started taxing sweetened drinks at 1.5 cents per ounce this year after a contentious debate. The tax was billed as a way to fund community schools, prekindergarten programs, recreation centers, libraries and parks. However, revenue expectations have fallen short every month since the tax took effect in January.

Based on preliminary estimates, the tax generated $39.3 million in revenue through the end of June. That's about 15 percent short the city's original projection of $46 million, and just under its revised estimate of $39.7 million.

A new study from market research firm Catalina found people in Philadelphia are still buying sugary drinks, but they're traveling outside city limits to stock up.

Sales of carbonated soft drinks, the largest sweetened beverage category, fell 55 percent inside the city. Just outside it, sales rose 38 percent. Energy drinks, sports drinks, ready-to-drink coffee and tea and refrigerated juice drinks have all seen similar trends.

The city says it is too soon to judge the tax. It partially blamed the shortfall on retailers stocking up on products before the tax went into effect, said Mike Dunn, a spokesman for the city. Soda sales are also seasonal, he said, and current results only represent the first half of the year.

Catalina's study analyzed 109 million transactions at sales at grocery, mass and drug stores around Philadelphia. Dunn cautioned that supermarkets account for less than half of beverage sales in Philadelphia. He said the city also expected some people to initially drive to the suburbs then change their mind.

Philadelphia soda tax falling flat

"We remain confident that the beverage tax is and will remain a reliable source of revenue, to the benefit of thousands of Philadelphian families and children," Dunn said. "This confidence is based on the results so far — nearly $40 million raised in the first six months of a brand new tax."

The tax has seemed to encourage people to drink more water. Sales of bottled water within the city core have increased 13 percent, Catalina found. Inside the city lines, sales grew nearly 9 percent.

The city expected distributors and retailers to recoup some of the "claimed losses" through such substitution, Dunn said. Still, businesses have condemned the tax. Groups like Ax The Bev Tax have been outspoken about their disdain for the tax and their efforts to get it repealed.

Philadelphia's sales tax has been closely watched because it was the first enacted in a major city. Berkeley, California, had passed a similar tax beforehand. Since then, five other cities and one county have voted to introduce similar measures.The county is Cook County, Illinois, which includes Chicago.

Correction: This story was updated to correct the data for May and June in the accompanying chart.