AN ACT IMPOSING A TAX ON SUGARY SOFT DRINKS.

Agency Affected	Fund-Effect	FY 16 $	FY 17 $
Public Health, Dept.	GF - Revenue Gain	62.1 million	86.2 million
Department of Revenue Services	GF - Cost	507,000	247,000
Public Health, Dept.	GF - Cost	Up to 237,100	Up to 432,500
State Comptroller - Fringe Benefits¹	GF - Cost	148,457	220,482

Municipal Impact: None

Explanation

The bill results in revenue gain of $62.1 million in FY 16 and $86.2 million in FY 17 by imposing a tax of one cent per fluid ounce on soft drinks, as defined by the bill. The bill creates a “soft drink tax account” and requires the Commissioner of Revenue Services to deposit the revenue generated by this tax into the account.

The bill results in a total cost of up to $892,557 in FY 16 and $899,982 in FY 17 to administer the tax and the funds generated by the tax.

Tax Administration

To administer the newly established tax, DRS would require one Tax Corrections Examiner ($55,000 for salary and $21,258 for fringe costs) to verify the accuracy of tax returns and three Revenue Examiners ($64,000 for salary and $24,736 for fringe costs per position) for audit and enforcement, resulting in a total annualized cost of $342,466 beginning in FY 16. This estimate is based on the administrative requirements for other state trust taxes.²

The DRS would also incur a one-time cost of approximately $260,000 in FY 16 for form development and printing, changes to the online Taxpayer Service Center (TSC) associated with electronic filing, and programming changes to the Department's Integrated Tax Administration System (ITAS). It is anticipated that DRS administrative costs will be funded through the revenue generated by the tax.

Department of Public Health Administration (DPH)

The bill requires DPH to use funds in the soda tax account for education and outreach regarding obesity, heart disease and diabetes. The implementation of the education and outreach is not defined by the bill.

It is expected that DPH will undertake the education and outreach required under the bill by establishing a community grant process. The agency may require additional staff to oversee the development of the Request for Proposal (RFP) process through which grants would be distributed. It is anticipated that funding for positions will be provided through the soda tax account. Additional staff may include one Nurse Consultant and three Health Program Associates (one for each program area: obesity, heart disease and diabetes) with a half year cost of approximately $137,100 in FY 16 and a full year cost of $323,500 in FY 17 would be required. In addition, the bill will require an additional cost of $52,991 in FY 16 and $125,016 in FY 17 for fringe benefits.

The agency may also require an Advisory Board to oversee the disbursement of grant funding which may result in an annual cost of $50,000 to $100,000.

It is anticipated that the majority of the remaining funding will be distributed as grants through an RFP process. This process will be used to identify community-based partnerships which will likely include municipalities, healthcare systems, non-profits, businesses, regional planning organizations and schools to provide research-based interventions to address obesity, diabetes and heart disease.

The Out Years

The annualized ongoing fiscal impact identified above would continue into the future subject to inflation.

¹The fringe benefit costs for most state employees are budgeted centrally in accounts administered by the Comptroller. The estimated active employee fringe benefit cost associated with most personnel changes is 38.65% of payroll in FY 16 and FY 17.

² Trust taxes in this context are those which are not paid directly by taxpayers but rather are collected and aggregated by an intermediary and remitted by that third party to the Department of Revenue Services. Other examples include the Sales and Use Tax and the Withholding portion of the Personal Income Tax.