Soda Tax Repeal: Big Win For Big Soda

by Trefis Team
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Coca Cola
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The soda tax imposed in Cook County, Illinois since August 2 is headed for repeal after the Finance Committee overwhelmingly voted against it. Such a step marks a big win for the soda companies as well as the store owners that were steadfastly against the tax. While the tax is not going away until December 1, it stands to be one of the shortest-lived taxes in Illinois’ history. Taxes on sweetened drinks are a new occurrence, with Berkeley, California being the first city to pass one. Millions have been spent by both sides in their lobbying and marketing efforts, and this time the tax opponents have emerged as the victors.

How Is This A Big Win?

There is no doubt that such a tax would result in a loss in sales for beverage companies, as, at a penny-an-ounce, the tax can add 30% or more to the purchase price of the drinks. Hence, the companies have spent a considerable sum to keep such taxes at bay. The beverage industry has focused its lobbying efforts on the job losses such a tax causes, as well as how it hurts local businesses. Sales data reported in the tax’s first weekend by three retailers for 21 stores in Cook County are quite alarming; sales fell by 6% to 39% in each of the stores. Even higher declines were noted near the borders, as customers could just go across the county line to get their soda fix and avoid the tax. Robb Karr, president of the Illinois Retail Merchants Association, has stated that the rate of lost sales varies from mid-teens in the city center to mid-40s near the border in Cook County. These statistics were used immensely by groups opposed to the tax in their fight to repeal it.

Cook County is till now the largest jurisdiction in the country where such a tax has been imposed. Furthermore, this repeal comes after a number of defeats elsewhere for the big soda companies. Despite spending enormously in San Francisco, Oakland, and Albany, all in California, each of these cities received approval through voter referendums for a penny-an-ounce tax on sweetened beverages. While a 1.5 cent-an-ounce tax is still levied in Philadelphia, there is a concerted effort by the American Beverage Association to challenge this tax. The repeal in Illinois may serve as a red flag in cases such as Philadelphia, as well as for other counties considering the implementation of such a tax.

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Notes:

1) The purpose of these analyses is to help readers focus on a few important things. We hope such communication sparks thinking, and encourages readers to comment and ask questions on the comment section, or email content@trefis.com
2) Figures mentioned are approximate values to help our readers remember the key concepts more intuitively. For precise figures, please refer to our complete analysis for Coca-Cola

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