Legality of Philadelphia’s Soda Tax Upheld by Pa. Supreme Court

Last Updated: Jul 20, 2018

Soda-Cans-ArticleIn a 4-2 decision, the Pennsylvania Supreme Court upheld the legality of Philadelphia’s sugary beverage tax. The Supreme Court’s decision could have national implications as numerous other localities have instituted similar taxes as public health initiatives.

Background of Case

The Philadelphia Beverage Tax (PBT), which went into effect in January of 2017, levies a 1.5 cent-per-ounce tax on sugar-sweetened beverages. The tax is levied against distributors of soda and other sugary drinks.

Following the PBT’s passage by the Philadelphia City Council, the American Beverage Association and several other parties filed suit challenging the legality of the tax. These parties argue that the PBT violates the Sterling Act. The Sterling Act, 53 P.S. § 15971, prohibits any city council from imposing a tax on a transaction or subject that the Commonwealth of Pennsylvania already taxes. Soda and other sugary drinks are already subject to Pennsylvania's 6 percent sales tax. Although the PBT is levied against distributors, distributors have passed the cost of complying with the tax unto consumers via higher soda prices. This shifting of cost, opponents of the PBT claim, constitutes illegal double-taxation.

A Philadelphia Court of Common Pleas dismissed the case, Williams et al. v. City of Philadelphia et al., in December of 2016. The plaintiffs subsequently appealed to the Commonwealth Court of Pennsylvania.

In June of 2017, the Commonwealth Court affirmed the lower court’s ruling and upheld the legality of the PBT. The court reasoned that the PBT did not violate the Sterling Act because the PBT taxes non-retail distribution transactions and not retails sales to consumers. Any post-tax economic actions by private actors in response to imposition of the PBT, the court opined, do not constitute illegal double-taxation.

Following the Commonwealth Court’s decision, the plaintiffs appealed to the Pennsylvania Supreme Court. 

Supreme Court Decision

The Supreme Court heard the case in May of 2018 and issued its decision upholding the PBT’s legality on July 18, 2018.

The Supreme Court reasoned that the PBT does not violate the Sterling Act because the legal incidences of the PBT and the Commonwealth’s sales tax are different. Whereas the PBT is levied on distributor transactions independent of any retail sale, the sales tax is measured by purchase price and falls directly upon consumers at the time of sale.

Chief Justice Thomas G. Saylor wrote the majority opinion. Justices David Wecht and Sallie Mundy each authored dissenting opinions. Justice Kevin M. Dougherty did not participate in the decision.

The Pennsylvania Medical Society (PAMED) joined the American Medical Society (AMA), the Philadelphia County Medical Society, and several other public health and medical organizations in filing an amicus brief in support of the ordinance and to inform the Supreme Court of the devastating health consequences caused by the overconsumption of sugar-sweetened beverages.

PAMED will continue to monitor this case for additional developments and share all updates with members.

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