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Fact Check: Boulder soda tax unlikely to be incredible burden on small businesses

Crystal L. Eilerman, CU News Corps

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This November, Boulder voters will decide on initiative 2H, a citizens’ initiative to impose a tax of 2 cents per ounce on distributors who bring sugar-sweetened beverage products into the city of Boulder for retail sale.

Stop the Beverage and Grocery Tax, an issue committee opposed to the measure and funded by the American Beverage Association, has released a video advertisement featuring Peter Waters, operating partner of downtown Boulder restaurant T/ACO.

Waters: “It’s challenging enough to run a restaurant, especially one of this size, where we’re managing all of our inventory. Tracking yet another item for the sake of paying another tax would be an incredible burden.”

Waters has since walked back his opposition to the initiative, but remains concerned.

“I still haven’t been completely educated on how the rollout would look,” Waters said in a Boulder Daily Camera interview, “but the tax, as it’s been presented to us, seemed complicated for the operation of our business.”

The initiative’s author, Healthy Kids Colorado, admits the tax’s final provisions won’t be determined until after the election, during the city manager’s rulemaking process. However, based on the initiative’s language and on small business experiences in Berkeley, California, which passed a similar tax in 2014, these fears seem unrealistic.

Background

In November 2014, voters in Berkeley passed a 1-cent-per-fluid-ounce tax on sugar-sweetened beverages, which has been in effect since Jan. 1, 2015. This June, Philadelphia passed its own measure to impose a 1.5 cent tax, going into effect on Jan. 1, 2017. Boulder joins three California cities (Albany, Oakland and San Francisco) voting on sugary-beverage tax measures this November.

Boulder’s ballot measure grew out of Healthy Boulder Kids’ successful spring petition drive to add a provision to the city charter implementing a 2-cent tax on sugar-sweetened drinks.

The tax targets bottled sugar-sweetened beverages, like soda, sports drinks, sweetened ice teas and sweetened coffees, as well as syrups and powders premixed into sugar-sweetened drinks.

Excluded from the tax are alcoholic drinks, 100 percent natural fruit or vegetable juice without added sweeteners, beverages in which milk is the primary ingredient, beverages for medical use, weight-loss meal-replacement beverages, and infant and baby formula.

The Boulder City Council conditionally adopted the petition’s language on Sept. 16 (ordinance 8130), but because of provisions in the Taxpayer’s Bill of Rights (TABOR), the city can’t assess the tax unless Boulder voters approve initiative 2H in November.

“Tracking yet another item … would be an incredible burden.”

As written, the tax would apply to distributors, not retailers. The distributor would report its sales within the city to the city manager, while retailers would simply submit evidence that their sugary-beverage distributors have a current registration on file with the city.

(View Berkeley’s sugar-sweetened beverage remittance form on the city of Berkeley website.)

However, the initiative grants the city manager authority to create additional rules and regulations relating to administration and enforcement of the tax, which means the language in the ordinance is not necessarily set in stone.

“…for the sake of paying another tax…”

The provision’s language (Boulder Revised Code, Chapter 3-16) states the tax would apply to the first business in Boulder to sell or supply a sugar-sweetened beverage product within that business or to another business. The definition explicitly excludes retail sale to a customer.

“Distribution” or “Distribute” means the transfer of title or possession:

(1) From one business entity to another for consideration, or

(2) Within a single business entity, such as by a wholesale or warehousing unit to a retail outlet or between two or more employees or contractors.

“Distribution” or “Distribute” shall not mean the retail sale to a consumer.

“Distributor” means any person who distributes sugar-sweetened beverage products in the city.

The code later reiterates that the imposed tax “is a tax upon the privilege of … distributing sugar-sweetened beverage products within the City of Boulder” and “is not a sales, use, or other excise tax on the sale, consumption or use of sugar-sweetened beverage products.”

However, there is no reference in the current language to small businesses that self-distribute; that is, that transport sugar-sweetened beverage products into the city themselves and sell those products directly to consumers.

In Berkeley, the approved ballot measure mentioned the possibility of a small-business exemption for retailers that self-distribute; however, the Nov. 10, 2015, version of the city manager’s FAQ states that self-distributors are responsible for paying the tax as well.

The Berkeley City Manager’s Office spokesman, Matthai Chakko, confirmed the city has “dozens” of small businesses who pay the tax, and Healthy Boulder Kids acknowledged that the city manager will be in a position to create (or not create) exemptions for self-distributors after the tax has passed.

Healthy Boulder Kids’ campaign manager, Angelique Espinoza, said that in her experience working with the Boulder Chamber, “stakeholders will be invited to participate to ensure that particular hardships are accommodated.”

T/ACO itself, however, is unlikely to be impacted by the self-distributor discussion at all. Waters said the taqueria receives Coke products through a Denver-based distributor, though its simple syrup is made in house or purchased through local boutique manufacturers. However, the initiative would tax the beverage, not the syrup itself. As long the simple syrup is used only in alcoholic drinks, which are exempt from the tax, the syrup too would be exempt.

Ultimately, it’s unlikely that passage of the tax would be burdensome to small businesses, especially those that are not self-distributors. If the initiative passes, reporting and payment guidelines will be clarified during the city manager’s rulemaking process, but the final impact on product cost — both for the retailer and the consumer — will take longer to become clear.

Crystal L. Eilerman is a second-year master’s student in the journalism department of the College of Media, Communication and Information at the University of Colorado Boulder. She has served as an editor and communicator for the nonpartisan Wisconsin Legislative Reference Bureau, the basic-research journal Biology of Reproduction, the nonprofit Society for the Study of Reproduction and the CU-Boulder Office of the Registrar. She graduated with a degree in English from Edgewood College.

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Fact Check: Boulder soda tax unlikely to be incredible burden on small businesses