Monday, February 25, 2013

Have a Coke and a Tax Hike

NOTE: Updated 28-FEB-2013 with updated Senate Bill number.

California State Senator Bill Monning (Democrat, 17th Senate District) re-introduced his controversial soda tax (SB 229 and previously AB 669), which would levy a $0.01 per ounce tax on every beverage sweetened with a caloric sweetener such as sugar or corn syrup.

Okay, let's do a little math to see the total effect of this proposed legislation.

Johnny buys a 12-pack of 12-ounce cans of regular Coke for $3.60, on sale from a supermarket in Capitola, California.  How much, per can, will Johnny pay?

Divide $3.60 by 12 cans and you find that each can of Coke costs $0.30.

Now add $0.05 per can for the California Redemption Value (CRV), just for the privilege of using a bottle or can in California.

Now add the appropriate sales tax.  The sales tax in Capitola is 8.5% and it applies not only to the cost of the can but also the CRV.  The CRV is NOT a deposit, as commonly thought.  It is a government fee subject to tax.  Therefore, the sales tax applies to $0.30 for the soda plus $0.05 for the CRV.  8.5% of $0.35 is $0.03.

Because regular Coke is sweetened with a caloric sweetener, add Assemblyman Monning's $0.01 per ounce tax for the 12 ounce can.  This adds $0.12 per can.

What's the total cost for each 12 oz. can of regular Coke?

$0.30 for the can of Coke
$0.05 for the California Redemption Value (CRV)
$0.03 for the 7.5% California sales tax plus the additional 1.00% Capitola sales tax
$0.12 for Bill Monning's soda tax (SB 229 / AB 669)
$0.50 total cost for the can of Coke

For that $0.50 can, Johnny paid $0.30 for the Coke and $0.20 in taxes and fees.  Put another way, 60% of Johnny's money went to pay for something he actually wanted while 40% went to fund the California Nanny State.

The $0.30 can of Coke costs 67% more once government taxes and fees are applied.  The soda tax adds 32% over today's current cost, which would not include the soda tax.

Never mind that California ALREADY has ...
  • the nation's 1st, 2nd, 3rd, 5th, and 7th highest state income tax rates thanks to Proposition 30
  • the nation's highest state sales tax rate thanks to Proposition 30
  • the nation's 2nd highest gasoline and diesel taxes

Naturally, beverage companies fear that the additional taxes will cut demand, which is the stated purpose of the legislature.  I have little sympathy for the Coca Cola Company or PepsiCo, who spent a combined $3.7 MILLION to support tax increases on all Californians via Proposition 30.

It appears that beverages sweetened with non-caloric sweeteners are unaffected (at least so far).  There are also dozens of possible loopholes, potentially leading to some very interesting new product offerings by the beverage industry to circumvent the tax.

Also, as pointed out by @TrollColors in response to this piece, retailers will likely adjust the price of sugary and diet sodas to maximize their profits.  The extra $0.12 tax on sugary sodas allows retails the ability to increase prices on diet sodas while still keeping below the sugary soda price.  This action will increase their profits.

One also wonders whether the California Legislature will disallow welfare recipients from purchasing sugary sodas using EBT cards.  In the past, the California Legislature refused to ban tobacco purchases using EBT cards, despite that the California government also collects heavy taxes to combat cigarette use.

See also ...

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