» Sales or Excise Taxes on Soft Drinks

Explanation of an excise tax: An excise tax is usually imposed at the manufacturer level on all products in a similar industry based on special regulations needed by the state and to raise revenue for a related purpose to the industry taxed.  With all the discussions about tax increases at the Capitol this year- there have been some behind the scenes thoughts about an excise tax on soft drinks.

Some important background on why this excise tax is neither a fair nor advisable revenue source:

- Soft drinks are now subject to the full sales tax- an additional tax would be double taxation.

- A soft drink tax is regressive. It penalizes those least able to pay.  A soft drink tax would be paid predominately by young adults, large families, and low income consumers who purchase most soft drinks.

- There are certain accepted principles for any tax to be considered fair, and at least one of them should be present for a tax to exist; not one of these principles is present with regard to the soft drink excise tax:

1) The soft drink tax is not supported by the “equity” principle. It taxes one product and one industry, to the exclusion of all other natural competitors, without legitimate justification.  The tax is not imposed on a host of beverages (coffee, tea, juices, dairy products, punch, and powdered mixes) or snack items such as ice cream, crackers, candy, snacks, popsicles,  doughnuts or other pastries and confections.  This tax would be discriminatory.  The industry has been chosen without justification and will suffer from its random selection.

2) The soft drink tax is not supported by the “benefit” principle. Manufacturers and consumers of soft drinks do not receive any special benefit from the state, nor do they require special regulations by the state that would justify an additional tax.

3) The soft drink tax is not supported by the “ability-to-pay” principle.  Manufacturers and consumers of soft drinks are not in a better position to pay this unusual, very high percentage tax as opposed to other industries and groups.  Soft drinks are not a novelty item that would rationalize a “Luxury” tax.  In fact, the tax is regressive, hitting hardest those least able to pay- families on fixed incomes, the elderly and young adults.

- Soft drink excise taxes are hidden taxes that when called out are unpopular with the public. 95% of consumers believe they will bear the ultimate burden of beverage taxes.  Hiding beverage taxes at the wholesale level doesn’t fool consumers.  They know that they ultimately pay for these taxes in the price of products.

- Singling out local beverage bottlers, who already pay their fair share of business and other taxes, is discriminatory and unfair. In addition to the millions of dollars in general business taxes, the industry pays high vehicle and fuel taxes due to its tremendous fleet and distribution system.

- This tax would have a negative impact on Minnesota’s economy. There are thousands of jobs in beverage production, supply, distribution, sales and retailing which depend on a healthy beverage industry.  The beverage industry consists of local bottlers and distributors, and pays numerous taxes already.  The tax will impact hundreds of employee throughout the state, and a soft drink excise tax could lead to layoffs because of lost sales.

- Minnesota beverage facilities consist of key local employers who contribute over 3 million dollars annually to many community events, scholarship programs, mentoring programs, job training, and other charities. The industry’s ability to continue in this tradition depends on whether it can remain profitable in this very competitive market.

- Minnesota will lose sales to neighboring states. As prices change to accommodate the tax, border states can benefit from increased sales to consumers who are sensitive to the cost and cross state lines to purchase cheaper soft drinks.