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FOOD PRODUCTS; TAXATION;

OLR Research Report


SOFT DRINK AND CANDY TAXES

By: Rute Pinho, Principal Analyst


ISSUE
Which states tax soft drinks and candy? How do the (1) taxes work and (2) states allocate the revenue? (This report updates OLR report 2012-R-0490.)

Which states have recently proposed taxing soft drinks or candy? How would the taxes work?

Is there proposed federal legislation to tax soft drinks or candy? If so, would the legislation impact states seeking to do so?

SUMMARY

We identified four states (Arkansas, Tennessee, Virginia, and West Virginia) that levy an excise tax on soft drinks, but none that levy an excise tax on candy. All four of the states allocate all or a portion of the tax revenue generated to a specific purpose. Virginia and Tennessee direct the revenue to litter programs, while Arkansas and West Virginia direct the revenue to Medicaid and university programs, respectively.

While most states do not impose excise taxes on candy or soft drinks, many tax these goods at a higher sales tax rate than other grocery food. Of the 46 jurisdictions (45 states and the District of Columbia) that impose a state sales tax, 18 jurisdictions tax candy and 23 tax soft drinks at a higher rate than other groceries.

A search of 2013 and 2014 proposed bills found that at least 10 states (California, Connecticut, Hawaii, Illinois, Massachusetts, Nebraska, New York, Oregon, Rhode Island, and Vermont) considered imposing taxes on soft drinks or candy, but none have enacted such taxes. Most recently, Berkeley, California enacted an excise tax on soft drinks. The $0.01 per ounce tax took effect on January 1, 2015.

Most of the state proposals we examined would have imposed an excise tax on soft drink distributors, manufacturers, or wholesalers, based on the volume of the beverage. Hawaii considered a proposal to base the tax on the sugar content of the beverage. Massachusetts and Nebraska, on the other hand, considered proposals to tax soft drinks or candy by subjecting them to state sales taxes.

There is currently no proposed federal legislation to tax soft drinks or candy, but in 2014 there was a proposal to tax soft drinks. The Sweetened Beverages Tax (SWEET) Act (H.R. 5279) would have imposed an excise tax on manufacturers, producers, and importers of sugar-sweetened beverages. The proposed tax was $0.01 per teaspoon (4.2 grams) of sugar or other sweeteners contained in such beverages. It would have dedicated the revenue from the tax to fund programs and research designed to prevent and treat diabetes, obesity, tooth decay, and other diet-related diseases. Although the proposal would not have directly impacted states seeking to impose their own excise taxes on soft drinks, it would have increased the price of these products, thus potentially influencing both consumer behavior and the levying of additional state excise taxes.

STATE SOFT DRINK AND CANDY TAXES

Excise Taxes on Soft Drinks

Four states (Arkansas, Tennessee, Virginia, and West Virginia) levy excise taxes on soft drinks. Table 1 below briefly describes each state's tax. The states vary in how they levy the tax. Arkansas and West Virginia base the tax on volume, while Tennessee and Virginia base it on gross receipts.

All four of the states allocate all or a portion of the tax revenue generated to a specific purpose. Tennessee and Virginia direct the tax revenues to litter programs, while Arkansas and West Virginia direct the revenues to Medicaid and university programs, respectively.

Table 1: State Excise Taxes on Soft Drinks

State

Tax Rate and Base

Paid By

Use of Revenue

Arkansas

(Ark. Code Ann. 26-57-901 et seq.)

● $2 per gallon of soft drink or simple syrup

● $0.21 per gallon of bottled or canned soft drink product

● $0.21 for each gallon produced by powders or base products

Distributors, manufacturers, and wholesale dealers on the first sale in Arkansas

Funds the Arkansas Medicaid Program Trust Fund

Tennessee

(Tenn. Code Ann. 67-4-402)

1.9% of gross receipts derived from manufacturing, producing, or importing bottled soft drinks

Manufacturers, bottlers, and importers of bottled soft drinks

21% of the revenue funds litter prevention and collection programs

Virginia

(Va. Code Ann. 58.1-1700 et seq.)

Excise tax on gross receipts from soft drink sales as follows:

● $50 if the gross receipts are $100,000 or less

● $100 if the gross receipts are between $100,000 and $250,000

● $250 if the gross receipts are between $250,000 and $500,000

● $750 if the gross receipts are between $500,000 and $1,000,000

● $1,500 if the gross receipts are between $1,000,000 and $3,000,000

● $3,000 if the gross receipts are between $3,000,000 and $5,000,000

● $4,500 if the gross receipts are between $5,000,000 and $10,000,000

● $7,200 if the gross receipts are between $10,000,000 and $25,000,000

● $18,000 if the gross receipts are between $25,000,000 and $50,000,000

● $33,000 if the gross receipts exceed $50,000,000

Wholesalers and distributors of carbonated soft drinks

Funds the Litter Control and Recycling Fund

West Virginia

(W. Va. Code Ann. 11-19-1 et seq.)

Excise tax on sales, handling, use, or distribution of bottled soft drinks and soft drink syrup in the state as follows:

● $0.01 on each bottle of 16.9 ounces (1/2 liter) of bottled soft drink

● $0.80 on each gallon of bottled soft drink syrup

● $0.84 on each four liters of soft drink syrup

● $0.01 on each ounce of dry mix used to make soft drinks

Manufacturers, distributors, wholesale dealers, retail dealers, or any other person who is the original consignee of any bottled soft drink or soft drink syrup

Funds West Virginia University medical, dental, and nursing schools

Sales Taxes on Soft Drinks and Candy

Of the 46 jurisdictions (45 states and the District of Columbia) that impose a state sales tax, 33 exempt grocery food purchases from the tax and 6 tax such purchases at a reduced rate. Many of these jurisdictions exclude candy or soft drinks from the

definition of grocery food, thus making them taxable or subjecting them to the state's general sales tax rate. Table 2 indicates for each jurisdiction whether grocery food, candy, or soft drinks are taxable.

Table 2: Taxability of Groceries, Candy, and Soft Drinks Across Jurisdictions

T= Taxable at general sales tax rate, E= Exempt, RR = Taxable at a reduced rate

Jurisdiction

State Sales Tax Rate

Grocery Food

Candy

Soft Drinks

Alabama

4%

T

T

T

Arizona

5.6%

E

E

E

Arkansas

6.5%

RR

RR

RR

California1

7.5%

E

E

T4

Colorado

2.9%

E

T

T

Connecticut

6.35%

E

T

T

District of Columbia

5.75%

E

E2

T

Florida

6%

E

T

T

Georgia

4%

E

E

E

Hawaii

4%

T

T

T

Idaho

6%

T

T

T

Illinois

6.25%

RR

T

T

Indiana

7%

E

T

T

Iowa

6%

E

T

T

Kansas

6.15%

T

T

T

Kentucky

6%

E

T

T

Louisiana

4%

E

E

E

Maine

5.5%

E

T

T

Maryland

6%

E

T

T

Massachusetts

6.25%

E

E

E

Michigan

6%

E

E

E

Minnesota

6.875%

E

T

T

Mississippi

7%

T

T

T

Missouri

4.225%

RR

RR

RR5

Nebraska

5.5%

E

E

E

Nevada

6.85%.

E

E

E

New Jersey

7%

E

T

T

New Mexico

5.125%

E

E

E

New York

4%

E

T

T

North Carolina

4.75%

E

T

T

North Dakota

5%

E

T

T

Ohio

5.75%

E

E3

T

Oklahoma

4.5%

T

T

T

Pennsylvania

6%

E

E

T

Rhode Island

7%

E

T

T

South Carolina

6%

E

E3

E3

South Dakota

4%

T

T

T

Tennessee

7%

RR

T

RR

Texas

6.25%

E

T

T

Utah1

5.95%

RR

RR

RR

Vermont

6%

E

E

E

Virginia1

5.3%

RR

RR

RR

Washington

6.5%

E

E

T

West Virginia

6%

E

E

T

Wisconsin

5%

E

T

T

Wyoming

4%

E

E

E

Source: CCH State Tax Guide, State tax department websites

1State rate includes mandatory, statewide, local add-on sales taxes: California (1%), Utah (1.25%), and Virginia (1%).

2Candy bars purchased for immediate consumption are taxable when purchased with cash (rather than food stamps) in quantities of less than 6.

3Sale of candy or soft drinks for consumption on the premises is taxable.

4Only carbonated beverages are taxable; other soft drinks are exempt.

5Taxed at food rate if sold for off-premises consumption by a qualifying establishment.

Table 3 lists the jurisdictions that tax candy and soft drinks at a higher rate than grocery food. In all, 18 jurisdictions tax candy and 23 tax soft drinks at a higher rate than other groceries.

Table 3: States that Tax Candy and Soft Drinks at Higher Rates than Groceries

Candy Taxed at Higher Rate

Soft Drinks Taxed at Higher Rate

Colorado

Connecticut

Florida

Illinois

Indiana

Iowa

Kentucky

Maine

Maryland

Minnesota

New Jersey

New York

North Carolina

North Dakota

Rhode Island

Tennessee

Texas

Wisconsin

California (only carbonated beverages)

Colorado

Connecticut

District of Columbia

Florida

Illinois

Indiana

Iowa

Kentucky

Maine

Maryland

Minnesota

New Jersey

New York

North Carolina

North Dakota

Ohio

Pennsylvania

Rhode Island

Texas

Washington

West Virginia

Wisconsin

SOFT DRINK AND CANDY TAXES PROPOSED IN 2013 AND 2014

At least 10 states proposed taxing soft drinks or candy in 2013 and 2014, but none of them enacted the taxes. Table 4 lists the states, briefly summarizes each proposal, and indicates the proposed basis and rate, taxpayer, and use of the funds.

Over the two-year period, eight of the states (California, Connecticut, Hawaii, Illinois, New York, Oregon, Rhode Island, and Vermont) considered 10 bills imposing an excise tax on soft drinks. With the exception of two bills from Connecticut and Hawaii, the states proposed imposing the tax on distributors, manufacturers, or wholesalers and basing it on the volume of the beverage or the volume of the beverage that soft drink syrups or powders could make. Hawaii considered a proposal that based the tax on the amount of sugar in the beverage. Connecticut's proposal, on the other hand, based the tax on sales price, but did not specify who would pay it.

Unlike the other states, Massachusetts and Nebraska considered proposals to subject soft drinks (and candy in the case of Massachusetts) to the existing state sales and use taxes.

Most of the states proposed using all or a portion of the revenue generated from the taxes to fund obesity prevention or other public health programs. Illinois and Vermont also proposed directing a portion of the tax revenue to their Medicaid programs. One of Hawaii's proposals would have directed the revenue to its community health centers and trauma system special funds.

Table 4: Recent Soft Drink and Candy Tax Proposals

State and Bill

Proposal

Tax Basis and Rate

Imposed On

Proposed Use of Funds

California

Senate Bill 622 (2013)

Excise tax on sugar-sweetened beverages

$0.01 per ounce

Distributors

Children's Health Promotion Fund (to fund childhood obesity prevention activities and programs)

Connecticut

SB 96 (2014)

Excise tax on beverages high in calories and sugar

2% of sales price

Not specified

Not specified

Hawaii

SB 646 (2013)

Excise tax on sugar-sweetened beverages

$0.01 per teaspoon of sugar

Distributors

Community health centers and trauma system special funds

Hawaii

SB 1085 (2013)

HB 854 (2013)

Excise tax on sugar-sweetened beverages

$1.28 per gallon

Distributors

Obesity and Chronic Disease Prevention Special Fund

Illinois

HB 5690 (2013 and 2014)

Excise tax on sugar-sweetened beverages

$0.01 per ounce

Distributors

Illinois Wellness Fund (to fund school health and wellness, obesity prevention, and other public health programs) and Medicaid program

State and Bill

Proposal

Tax Basis and Rate

Imposed On

Proposed Use of Funds

Massachusetts

HB 2634 (2013)

Sales and use tax on soft drinks and candy

6.25% of sales price

Consumers

Prevention and Wellness Trust Fund (to fund public health programs)

Nebraska

LB 447 (2013)

Sales and use tax on soft drinks

5.5% of sales price

Consumers

Nebraska Healthy Kids Fund (to fund student fitness and school district wellness programs) and local health departments

New York

HB 7432 (2013)

Excise tax on sugar-sweetened beverages

$0.01 per ounce

Distributors

Children's Health Promotion Fund (to fund childhood obesity prevention activities and programs)

Oregon

HB 2331 (2013)

Excise tax on sugar-sweetened beverages

$0.005 per ounce

Distributors/ Manufacturers

Healthy nutrition, physical education, and public health programs and activities

Rhode Island

HB 5228 (2013)

Excise tax on sugar-sweetened beverages

$1.28 per gallon

Distributors/ Manufacturers/ Wholesalers

Prevention and Wellness Trust Fund (to fund health and wellness programs, including grants to towns, community-based organizations, and health care providers)

Vermont

HB 234 (2013)

Excise tax on sugar-sweetened beverages

$0.01 per ounce

Distributors

Vermont Healthy Weight Initiative Fund (to fund obesity prevention programs) and Medicaid

Sources: UConn Rudd Center for Food Policy & Obesity's Legislation Database; Westlaw search; state legislative websites

HYPERLINKS

2013 California Senate Bill No. 622, http://leginfo.legislature.ca.gov/faces/billNavClient.xhtml?bill_id=201320140SB622accessed January 14, 2015.

2013 Hawaii Senate Bill No. 646, http://www.capitol.hawaii.gov/session2013/bills/SB646_.htm, accessed January 14, 2015.

2013 Hawaii Senate Bill No. 1085, http://www.capitol.hawaii.gov/session2013/Bills/SB1085_SD1_.PDF, accessed January 14, 2015.

2013 Hawaii House Bill No.854, http://www.capitol.hawaii.gov/session2013/Bills/HB854_.pdf, accessed January 14, 2015.

2013 and 2014 Illinois House Bill No. 5690, http://www.ilga.gov/legislation/fulltext.asp?DocName=&SessionId=85&GA=98&DocTypeId=HB&DocNum=5690&GAID=12&LegID=&SpecSess=&Session, accessed January 14, 2015.

2013 Massachusetts House Bill No. 2634, https://malegislature.gov/Bills/188/House/H2634, accessed January 14, 2015.

2013 Nebraska Legislative Bill No. 447, http://nebraskalegislature.gov/FloorDocs/103/PDF/Intro/LB447.pdf, accessed January 14, 2015.

2013 New York House Bill No. 7432, http://legiscan.com/NY/text/A07432/id/848190, accessed January 14, 2015.

2013 Oregon House Bill No. 2331, https://olis.leg.state.or.us/liz/2013R1/Downloads/MeasureDocument/HB2331/Introduced, accessed January 14, 2015.

2013 Rhode Island House Bill No. 5228, http://webserver.rilin.state.ri.us/billtext13/housetext13/h5228.pdf, accessed January 14, 2015.

2013 Vermont HB 234, http://www.leg.state.vt.us/docs/2014/bills/Intro/H-234.pdf, accessed January 14, 2015.

House Resolution 5279, 113th Congress, https://www.congress.gov/113/bills/hr5279/BILLS-113hr5279ih.xml, accessed January 14, 2015.

UConn Rudd Center for Food Policy & Obesity's Legislation Database, http://www.yaleruddcenter.org/legislation/, accessed January 14, 2015.

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