Rep. Seth Grove (R-York) has been a leading voice in Harrisburg circles pushing back against the Philadelphia Beverage Tax, and that voice was amplified this week with the Independent Fiscal Office releasing an analysis of the tax on state revenues requested by Rep. Grove.
According to Grove, he requested the review – and continues to push back against the city’s beverage tax – due to his belief that it is having a negative impact on the city’s economy, which could potentially affect state revenue and spending priorities.
“It (the beverage tax) affects state revenues,” he said after the IFO’s letter was made public Monday. "The more we diminish the economy of Philadelphia, the more it hurts us statewide: tax collections, revenue collection, the whole nine yards. Then, Philadelphia is such a large economic base, what happens there matters to the rest of the state."
Ultimately, the IFO study relayed that the beverage tax is likely a zero-sum game in terms of state sales tax revenue.
The Philadelphia beverage tax “would have no material direct impact on the state sales and use tax (SUT) revenue collections,” the report states. “Reduced SUT collections due to lower consumption would be offset by higher SUT collections from the inclusion of the city beverage tax in the final purchase price.”
As a caveat, however, the report does note that there could be an unquantifiable effect of people being driven out of state to purchase beverages subject to the tax, which could have the consequence of consumers doing additional shopping in those locations.
“It is very possible that consumers are motivated to purchase those products out-of-state (as opposed to consuming less), and some may also purchase other sundry items that are taxable during those trips,” the IFO analysis states. “To the extent that activity occurs, it will negatively impact state revenues.”
It was this that Rep. Grove noted could have a detrimental impact on the city and the state.
“If all those people want to go purchase in Pennsylvania it won’t hurt our sales tax all too much, but they’re going to Delaware, they’re going to New Jersey and purchasing those products,” he said, “when [Philadelphia] continues to over-tax they concede their turf, they hurt their consumption, which hurts sales tax – and that’s a big tax for Pennsylvania.”
Though not part of the study, Rep. Grove argued the effect of the tax in lowering consumption could hurt businesses, which would be forced to lay off workers, thereby forcing them out of the state as well, affecting the income tax and other revenue sources.
“We have a huge revenue crunch coming and I want to keep those jobs – those wage earners – in Pennsylvania,” he said. "If they (Philadelphia) keep hurting their economy, they can't fund their schools, they keep coming back to us for more money in their education system.”
According to city spokesperson Mike Dunn, the study further proves claims about the tax the city has been stating for some time.
“We appreciate Rep. Grove requesting an independent analysis, which concludes that the Philadelphia Beverage Tax will have ‘no material direct impact’ on the state sales tax," he said. “This analysis, performed by a non-partisan state office, is further evidence to refute the beverage industry’s claims that somehow this tax interferes with the revenue raising goals of the commonwealth – claims that have already been dismissed as a matter of law by the Court of Common Pleas.”
“We welcome the opportunity for Rep. Grove to come to Philadelphia and see firsthand the improvements that the Philadelphia Beverage Tax has made already to both our city’s economy and our education system, from increased services in our community schools, to nearly 2,000 kids now in pre-K and 251 new jobs in the early childhood education field.”
As to Rep. Grove's contention that sales would be pushed out of state by the beverage tax, Dunn stated that it is unlikely.
"Given the toll fees people would have to pay to travel into New Jersey, and the fact that New Jersey just increased their gas tax, we’d argue it’s pretty unlikely any significant number of Philadelphians are traveling out of state to save one-and-a-half-cents per ounce," he said.
Rep. Grove is also one of 36 state lawmakers who filed an amicus brief in Commonwealth Court looking to have the tax invalidated because, as the brief stated, “the tax is not constitutional, violates the law, and will result in lost sales tax revenue collection into the commonwealth’s general fund, directly impacting the budget and jeopardizing the ability to pass a timely budget and the funding of important services.”
The case is scheduled to be argued in front of the entire Commonwealth Court on April 5 while the court is sitting in Pittsburgh.
By way of background, the Philadelphia beverage tax – the first of such taxes by a major US city – was signed into law last June and became effective Jan. 1. It calls for a levy of 1.5 cents per ounce on distributors of sweetened beverages.
The first month’s collections of $5.7 million nearly doubled what the city was expecting.
Before exceeding estimates in the first month, the tax was anticipated to bring in $410 million over the next five years and will go toward 6,500 additional pre-K seats and 25 community schools. Some funding from the tax will also go toward servicing $300 million in new debt taken out by the city for improvements to existing parks, libraries and recreation centers.
Jason Gottesman is the Harrisburg bureau chief for The PLS Reporter, a non-partisan, online news site devoted to covering Pennsylvania government.