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Washington Voters Might Ban Local Grocery Excise Taxes, Including Soda Taxes

By: Jared Walczak

Groceries are already excluded from the sales taxA sales tax is levied on retail sales of goods and services and, ideally, should apply to all final consumption with few exemptions. Many governments exempt goods like groceries; base broadening, such as including groceries, could keep rates lower. A sales tax should exempt business-to-business transactions which, when taxed, cause tax pyramiding. in Washington State, and a pending ballot measure, Prohibit Local TaxA tax is a mandatory payment or charge collected by local, state, and national governments from individuals or businesses to cover the costs of general government services, goods, and activities. es on Groceries Measure (Initiative 1634), won’t impact whether that ever changes. What it would do, though, is prevent localities from adopting new taxes on groceries–or certain grocery subcategories–independently of the state. Although it technically applies more broadly, in practice, it’s best to think of this as statewide voter preemption of new local soda taxA soda tax is an excise tax on sugary drinks. Most soda taxes apply a flat rate per ounce of a sugar-sweetened beverage. es.

In the past, Washington courts have held that local governments can only impose taxes expressly authorized by statute. That’s been a constraint on many local tax initiatives, but not on soda taxes, because Washington localities do have excise taxAn excise tax is a tax imposed on a specific good or activity. Excise taxes are commonly levied on cigarettes, alcoholic beverages, soda, gasoline, insurance premiums, amusement activities, and betting, and typically make up a relatively small and volatile portion of state and local and, to a lesser extent, federal tax collections. authority. In January of this year, Seattle became one the few cities nationwide to impose a soda tax, levied at 1.75 cents per ounce (about $1.18 for a two-liter bottle).

The average Washington household purchases 102 liters of sugar-sweetened beverages per year. At 1.75 cents an ounce, that adds up to more than $60 in soda taxes each year. Meanwhile, 47 percent of sugar-sweetened beverages sold are purchased by households making less than $50,000 a year.

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A well-structured sales tax would apply to all final consumer transactions, including grocery purchases, and yes, including soda. The key here, of course, is that soda would be taxed just like any other food or beverage purchase (or indeed, like most other consumer purchases of all varieties). Excise taxes target specific transactions, either to discourage those purchases or to generate revenue from an activity linked to a particular cost of government—at least theoretically. In practice, certain “sin” taxes are often pursued chiefly as an easier way to generate new revenue than increasing existing broad-based taxes.

Should Washington State ever add food and beverages to its sales tax baseThe tax base is the total amount of income, property, assets, consumption, transactions, or other economic activity subject to taxation by a tax authority. A narrow tax base is non-neutral and inefficient. A broad tax base reduces tax administration costs and allows more revenue to be raised at lower rates. –which would be good policy–then local governments implanting local option sales taxes would tax those transactions as well, at the same rate as any other purchase subject to sales tax. If the measure passes, however, localities will not be able to go it alone in imposing excise taxes on soda or other foods and beverages (other than alcohol, where a tax is expressly authorized).

Excise taxes have their place, particularly when they approximate fee-for-use. The gas taxA gas tax is commonly used to describe the variety of taxes levied on gasoline at both the federal and state levels, to provide funds for highway repair and maintenance, as well as for other government infrastructure projects. These taxes are levied in a few ways, including per-gallon excise taxes, excise taxes imposed on wholesalers, and general sales taxes that apply to the purchase of gasoline. is a classic example: the purchase of motor fuel serves as a rough proxy for a driver’s contribution to congestion and road wear-and-tear, and helps fund the infrastructure that drivers use. Any governmental costs associated with soda are far more indirect and mostly arbitrary: even if we say that excessive soda consumption increases government health care costs (many of which are borne by federal and state, not local, governments anyway), the same also applies to a wide range of foods that don’t fall under a special excise tax.

It’s certainly not a neutral tax system—and the reality is, its nonneutrality isn’t even particularly well-calibrated. Soda taxes certainly reduce sales, partly because consumers purchase their soda outside city limits to avoid the tax. There’s also evidence that they reduce consumption—but that they may also drive people to substitute other high-calorie foods and beverages (including higher beer consumption) that aren’t as heavily taxed.

It’s also nonneutral with regard to income classes. Soda taxes are heavily regressive, since lower-income individuals drink more soda than do higher-income earners. There can be a substantial effect on some businesses as well. Grocery stores experience some effect, but the real losers are convenience stores, delis, and fast food establishments, which generate much of their margin from soft drink sales. If they lose business, or are deprived of these margins, they can face serious financial challenges.

Voters shouldn’t be asked to block the inclusion of groceries (including soda) from the sales tax base at a later date—but fortunately, they’re not being asked to do that in Washington. This isn’t a constitutional measure, and it doesn’t change the current state treatment of groceries under the sales tax. Instead, the ballot measure, if adopted, would statutorily preempt discriminatory local taxes which target only certain purchases, potentially at exceedingly high rates. (Existing taxes would be grandfathered in, so Seattle’s tax would not be jeopardized by the initiated statute.) That’s a proposition many voters are likely to find attractive.