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Oct
31

Do Sales Taxes Hurt Washington State Food Makers?

The Vote Yes On I-1007 campaign asserts that sales taxes on candy and beverages (which they call “groceries”) “hurt” Washington state “food makers” as well as “family farmers and ranchers.” The type of “hurt” is not defined; let’s assume the campaign means the sales tax will “reduce sales.” Given that the initiative is funded primarily by the American Beverage Association, we’ll focus this article on beverages.

Several organizations have researched the impact that significant taxes on sugar-sweetened beverages (SSBs) might have on obesity rates among children and adolescents, with the goal of reducing consumption (pdf).

Research has shown that relatively large increases in taxes on cigarettes and other tobacco products are the single most effective policy approach to reducing tobacco use….Emerging studies suggest that small taxes on SSBs are unlikely to affect obesity rates…

Small taxes, in other words, do not lead to a significant change in behavior. What is the current tax rate on beverages in Washington — is it relatively small or large?

From the state Department of Revenue (emphasis in original):

The carbonated beverage tax is imposed on the sale of carbonated beverages at wholesale or retail in Washington.  The tax does not apply to successive sales of previously taxed carbonated beverages. This tax is effective July 1, 2010 – June 30, 2013.

The rate is $.02 per 12 ounces of carbonated beverages.

This is not a tax imposed on the consumer; it is imposed on distributors and retailers (pdf). This week at Fred Meyer, Coca-Cola is on sale for $5.50 for a 12-pack of 12-ounce cans. Thus the excise tax on this sale item accounts for $0.24 or 4.4 percent of the total retail price. Conversely, a 12-ounce soda from a vending machine costs $1.00 – $1.50, with an effective tax rate of 2 percent or less.

Is this a significant, that is large, tax rate?

First, the excise tax rate appears to be less than the national average sales tax on soft drinks. As of January 1, 2009, 33 states had a soft drink sales tax; the average rate was 5.2 percent (pdf).

Second, there is no rational comparison between this excise tax and that on cigarettes. The excise tax on a pack (not a carton, a pack) of cigarettes in Washington is $3.025 (pdf). Clearly the beverage tax does not approach the rate needed to significantly curtail consumption (and thus sales).

Nevertheless, how might this beverage tax hurt Washington farmers and ranchers?

The short answer is that will have almost no impact on Washington state farmers and ranchers because we aren’t a sugar beet powerhouse. A 2009 Washington State University report (pdf) characterizes the state sugar beet industry as “small” – Washington produces only 0.25 percent of the nation’s sugar beets. And a WSU flyer (pdf) reported that in 1997 sugar beet production employed 300-400 seasonal laborers each year. No big impact here.

Thus there appears to be no evidence for the Pro-1107 claim that the carbonated beverage tax will hurt food makers or farmers or ranchers.

Learn more about I-1107.

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