[J-31A-2018 and J-31B-2018] [MO: Saylor, C.J.]
IN THE SUPREME COURT OF PENNSYLVANIA
EASTERN DISTRICT
LORA JEAN WILLIAMS; GREGORY J. : No. 2 EAP 2018
SMITH; CVP MANAGEMENT, INC. D/B/A :
OR T/A CITY VIEW PIZZA; JOHN'S : Appeal from the Order of
ROAST PORK, INC. F/K/A JOHN'S : Commonwealth Court entered on
ROAST PORK; METRO BEVERAGE OF : 06/14/2017 at No. 2077 C.D. 2016
PHILADELPHIA, INC. D/B/A OR T/A : affirming the Order entered on
METRO BEVERAGE; DAY'S : 12/19/2016 in the Court of Common
BEVERAGES, INC. D/B/A OR T/A DAY'S : Pleas, Philadelphia County, Civil
BEVERAGES; AMERICAN BEVERAGE : Division, at No. 01452 September
ASSOCIATION; PENNSYLVANIA : Term 2016.
BEVERAGE ASSOCIATION; :
PHILADELPHIA BEVERAGE : ARGUED: May 15, 2018
ASSOCIATION; AND PENNSYLVANIA :
FOOD MERCHANTS ASSOCIATION, :
:
Appellants :
:
:
v. :
:
:
CITY OF PHILADELPHIA AND FRANK :
BRESLIN, IN HIS OFFICIAL CAPACITY :
AS COMMISSIONER OF THE :
PHILADELPHIA DEPARTMENT OF :
REVENUE, :
:
Appellees :
LORA JEAN WILLIAMS; GREGORY J. : No. 3 EAP 2018
SMITH; CVP MANAGEMENT, INC. D/B/A :
OR T/A CITY VIEW PIZZA; JOHN'S : Appeal from the Order of
ROAST PORK, INC. F/K/A JOHN'S : Commonwealth Court entered on
ROAST PORK; METRO BEVERAGE OF : 06/14/2017 at No. 2078 C.D. 2016
PHILADELPHIA, INC. D/B/A OR T/A : affirming the Order entered on
METRO BEVERAGE; DAY'S : 12/19/2016 in the Court of Common
BEVERAGES, INC. D/B/A OR T/A DAY'S : Pleas, Philadelphia County, Civil
BEVERAGES; AMERICAN BEVERAGE : Division, at No. 01452 September
ASSOCIATION; PENNSYLVANIA : Term 2016.
BEVERAGE ASSOCIATION; :
PHILADELPHIA BEVERAGE : ARGUED: May 15, 2018
ASSOCIATION; AND PENNSYLVANIA :
FOOD MERCHANTS ASSOCIATION, :
:
Appellants :
:
:
v. :
:
:
CITY OF PHILADELPHIA AND FRANK :
BRESLIN, IN HIS OFFICIAL CAPACITY :
AS COMMISSIONER OF THE :
PHILADELPHIA DEPARTMENT OF :
REVENUE, :
:
Appellees :
DISSENTING OPINION
JUSTICE WECHT DECIDED: July 18, 2018
I agree with the doctrinal framework set forth by the learned Majority, which
invokes the legislative intent we have previously discerned in the Sterling Act1 to grant
the City of Philadelphia the widest practicable local taxing authority, provided that it does
not constructively duplicate a state-imposed tax. That is to say, I agree broadly with the
Majority’s reaffirmation of the “incidence test” articulated by this Court in Commonwealth
v. National Biscuit Co., 136 A.2d 821, 825-26 (Pa. 1957) (hereinafter, “Nabisco”2). I part
ways with the Majority in its conclusion that Philadelphia’s Sugar-Sweetened Beverage
Tax (“PBT”) passes muster under that test. Thus, I respectfully dissent.
In the Sterling Act, our General Assembly stated: “It is the intention of this section
to confer upon cities of the first class [i.e., Philadelphia] the power to levy, assess and
1 See Act of Aug. 5, 1932, P.L. 45, § 1, as amended, 53 P.S. §§ 15971-73.
2 Below, I have occasion to cite a separate decision of this Court involving National
Biscuit Co. For clarity’s sake, I use Nabisco only to refer to our 1957 decision.
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collect taxes upon any and all subjects of taxation which the Commonwealth has power
to tax but which it does not now tax or license.” 53 P.S. § 15971(a). The General
Assembly then described and limited this taxing authority as follows:
[T]he council of any city of the first class shall have the authority by
ordinance, for general revenue purposes, to levy, assess and collect, or
provide for the levying, assessment and collection of, such taxes on
persons, transactions, occupations, privileges, subjects and personal
property, within the limits of such city of the first class, as it shall determine,
except that such council shall not have authority to levy, assess and
collect . . . any tax on a privilege, transaction, subject or occupation, or on
personal property, which is now or may hereafter become subject to a State
tax or license fee.
Id. This Court long has perceived the Sterling Act’s grant of taxing authority to
Philadelphia to be quite broad, ensuring since the time of the law’s Depression-era
enactment that Philadelphia has revenue power sufficiently robust to enable it to address
the peculiar challenges it faces as our most populous city. See Maj. Op. at 10-11 (citing
Nat’l Biscuit Co. v. City of Phila., 98 A.2d 182, 185 (Pa. 1953); City & Cty. of Phila. v.
Samuels, 12 A.2d 79, 81 (Pa. 1940)).
I have no quarrel with this paradigm. But it cannot be stretched to the point that
the legislative ban on duplicate taxation is ignored or read out of the law. In nominally
levying a tax imposed by volume upon the distribution of sugar-sweetened beverages
(“SSBs”)3 for retail sale, the Philadelphia City Council knowingly and intentionally
burdened end-consumers of SSBs in what amounts to a tax that duplicates the
Commonwealth sales tax upon the same broad category of beverages. 4 The evidence
3 As highlighted by the Majority, this moniker is misleading insofar as the tax applies
to certain beverages sweetened by sugar substitutes. See Maj. Op. at 2 (citing Williams
v. City of Phila., 164 A.3d 576, 579 (Pa. Cmwlth. 2017) (en banc); PHILA. CODE § 19-
4101(3)).
4 The details of the considerable overlap between SSBs under the PBT and “soft
drinks” as defined by the General Assembly for purposes of excluding them from the sales
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lies not only in the text and structure of the PBT itself, but also in the process by which
the City considered, drafted, and refined the legislation.
****
As I dig more deeply into the PBT, I am compelled to greet skeptically the
characterization of the PBT as a “distribution” tax in the first instance. The PBT, enacted
by dint of the Sterling Act’s grant of authority, defines a distributor as “[a]ny person who
supplies sugar-sweetened beverage to a dealer.” PHILA. CODE § 19-4101(2). A dealer,
in turn, is “[a]ny person engaged in the business of selling sugar-sweetened beverage for
retail sale within the City.” Id. § 19-4101(1). However, Section 19-4103 makes clear by
its language that the tax in fact is not directed at distribution as such. Rather, the tax is
imposed upon the following:
[T]he supply of any sugar-sweetened beverage to a dealer; the acquisition
of any sugar-sweetened beverage by a dealer; the delivery to a dealer in
the City of any sugar-sweetened beverage; and the transport of any sugar-
sweetened beverage into the City by a dealer. The tax is imposed only
when the supply, acquisition, delivery or transport is for the purpose of the
dealer’s holding out for retail sale within the City the sugar-sweetened
beverage or any beverage produced therefrom.
Id. § 19-4103(1) (emphasis added). This broad list of taxable activities—supply,
acquisition, delivery, and transport—encompasses by implication distribution in its
common sense, but effectively and exclusively captures any logistical activity that serves
the end goal of retail sale of an SSB.
Notably, Subsection 19-4103(1), the core grant of authority in this putative
“distribution” tax, does not even use the word “distribution” or refer by its terms to a
tax exemption for certain food items are not essential to my analysis. However, the
distinctions may be gleaned by comparing Philadelphia Code § 19-4101(3) with 72 P.S.
§ 7201(a) (defining “soft drinks”) and the “soft drink” exemption from the sales tax
exclusion for “food or beverages for human consumption” provided in 72 P.S. § 7204(29).
[J-31A-2018 and J-31B-2018] [MO: Saylor, C.J.] - 4
“distributor.” Nonetheless, the express terms delineating taxable activities ensure that a
distributor can be taxed, wherever it is found, wherever its transaction with a Philadelphia
dealer occurs. But when a distributor cannot be taxed, for example because one cannot
be identified or has failed to provide the dealer with proof of registration, then the dealer
will be. See, e.g., id. § 19-4107(1). Indeed, no distribution in the conventional sense
need occur for the tax to come due. Rather, by design, the PBT ensures that the levy is
imposed once upon every SSB that is held out for retail sale in Philadelphia. See, e.g.,
id. § 19-4105(3) (protecting against double imposition of the tax upon a “distributor/dealer”
under circumstances where “the tax already has been imposed on the supply or delivery
of the beverage to the dealer/distributor or the acquisition of the beverage by the
dealer/distributor”). While the cost most frequently may be borne by distributors, it applies
whether or not a distributor is involved. Thus, the PBT effectively is tied not to distribution
itself, but rather to any activity that contributes specifically and exclusively to the supply
of SSBs intended for retail sale within the City.
We also must bear in mind the effect of the limitation of the Sterling Act’s taxing
authority to “persons, transactions, occupations, privileges, subjects and personal
property, within the limits of such city of the first class.” 53 P.S. § 15971(a) (emphasis
added). If the PBT can affect distribution or procurement outside Philadelphia—if, for
example, a dealer leaves Philadelphia to obtain SSBs with the intent to transport those
SSBs back into the City for retail—it is unclear how that extraterritorial transaction can be
taxed under a provision that permits taxation only within the city limits. In fact, the only
understanding of the activity to be taxed that respects and adheres to the statutorily
required geographical nexus with Philadelphia is that it applies inexorably to the offering
of SSBs for sale at retail in the City. Thus, for the PBT to be understood consistently with
[J-31A-2018 and J-31B-2018] [MO: Saylor, C.J.] - 5
the Sterling Act’s authority, we again must conclude that the tax by design targets retail
sales of SSBs.
These textually-driven inferences are difficult to dispute. Moreover, they are
reinforced by the history of the drafting, refinement, and enactment of the PBT, and by a
review of the process through which SSBs, rather than some other category of retail
commerce or economic activity, were selected as the source of the revenue that
Philadelphia tapped in order to fund improvements in early childhood education. The City
Council was well aware that much of the cost of the tax, wherever in the supply chain it
was to be assessed, would be passed through in significant part to the consumer. Indeed,
Council’s revenue projections incorporated the conservative assumption that sales of
SSBs would drop by 55% as a consequence of the tax’s expected impact on retail prices.5
Time and again, in meetings of the Committee of the Whole, Council heard from both
citizens and public officials that the PBT would reduce consumption of SSBs and that this
would have a salutary effect both city-wide and specifically in and on the very communities
that would receive revenues needed to fund new educational opportunities.
Relevantly, at the March 29, 2016 Committee Hearing, the Mayor’s Chief of Staff
signaled her familiarity with other cities’ experiences with the imposition of similar taxes,
vis-à-vis whether and to what extent the cost of the tax would be passed on from the
5 See Transcript, Hearing on Bill Nos. 160170, 160171, and 160172 Before the
Committee of the Whole (hereinafter “Committee Hearing”), 5/3/2016, at 112-13
(testimony of Thomas Farley, Commissioner of Philadelphia’s Department of Public
Health) (opining that the group estimating PBT receipts assumed a 55% decline in
consumption). Limited excerpts of transcripts documenting this hearing and others have
been submitted as exhibits to filings in the trial court. We may (and I do) take judicial
notice of the full transcripts of these meetings. Transcripts of public City Council
committee meetings may be obtained by utilizing the search form located at
legislation.phila.gov/council-transcriptroom/transroom_committee.aspx (last reviewed
June 6, 2018).
[J-31A-2018 and J-31B-2018] [MO: Saylor, C.J.] - 6
distributor to the consumer. She and the City’s Finance Director both attested that, in
those other cities, roughly half of the new tax burden reached the consumer.6 The
Mayor’s Chief of Staff also underscored the expectation that the tax would affect
consumer behavior when she emphasized that “part of the idea is that people will also
have a choice to make here and they can change to other beverage consumption.” 7 At
subsequent meetings, various public comments were received concerning the public
health benefits associated with reducing SSB consumption.8 Indeed, Philadelphia’s
Public Health Commissioner testified emphatically regarding his Department’s support of
“[w]hatever is going to reduce that consumption [of SSBs] the most,” noting that the
communities within which SSB consumption is most prevalent are also those low-income
communities that would be most sensitive to increased prices and most likely to reduce
consumption in the face of price increases.9
6 See Committee Hearing, 3/29/2016, at 19 (Chief of Staff Jane Slusser), 20
(Finance Director Rob Dubow).
7 Id. at 24. Chief of Staff Slusser and Finance Director Dubow relied upon the
experience of Berkeley, California, following its enactment of a similar tax directed at the
distribution of sugar-sweetened beverages. The degree to which the cost of the
distribution tax imposed by Berkeley was passed to consumers is taken up at length in a
study prepared by the Public Health Institute and the Global Food Research Program of
the University of North Carolina at Chapel Hill, attached to the Complaint as Exhibit N.
This pass-through question was of particular importance to Berkeley officials, because
Berkeley specifically intended to reduce through retail price increases the rate of
consumption of SSBs to improve public health.
8 See, e.g., Committee Hearing: Neighborhood, 4/12/2016, at 23-24 (comments of
Barbara Gold, M.D., Philadelphia pediatrician).
9 Committee Hearing, 5/3/2016, at 92, 93-102 (testimony of Commissioner Thomas
Farley).
[J-31A-2018 and J-31B-2018] [MO: Saylor, C.J.] - 7
In a recorded and transcribed April 7, 2016 conversation10 with Michael
Smerconish, Mayor Jim Kenney echoed these themes. The Mayor made clear that his
focus in advancing the PBT was to generate revenue for the various educational
programs slated to receive the proceeds of the levy. Mayor Kenney also acknowledged
that a substantial portion of the tax burden would be borne by the consumer. With respect
to the prospect that the tax burden would be passed on, the Mayor stated that, if a
consumer is “mad at Jim Kenney because he raised the tax on sugary sweet beverages,
[the consumer] can choose not to buy that item.” Interview by Michael Smerconish (April
7, 2016). Mayor Kenney suggested that the consumer might select a “healthy choice”
instead. Id. The Mayor continued to emphasize the element of consumer choice, and
invoked the beverage tax experience of Berkeley, California, where approximately half of
the levy’s burden had reached consumers. Confronted with accusations that the tax was
a “nanny state” measure, Mayor Kenney responded as follows:
Well we’re not a nanny state. We’re a city with a large poor population that
costs us money in many different ways. If you look at the cost of our prisons,
the cost of prosecuting crime, the cost of fighting crime, the cost—the
unreimbursed costs of health issues like diabetes and other things, we pay
in the end anyway.
Id. (emphasis added). Finally, after underscoring the benefits of the universal pre-K
opportunities to be funded by PBT revenues, Mayor Kenney again emphasized the
“ancillary health benefits which are terrific, if people start drinking less sugar-sweetened
beverages.” Id.
Thus, speaking generally, the many official and public discussions that occurred
during the preparation and enactment of the PBT expressly invoked both the virtues of
the educational opportunities to be funded and the health benefits to be realized from
10 The transcript was entered into the record as Exhibit M to the Tax Objectors’
Complaint.
[J-31A-2018 and J-31B-2018] [MO: Saylor, C.J.] - 8
deterring SSB consumption, specifically by way of the anticipated pass-through of a
portion of the tax burden to the consumer in the form of higher retail prices. Although
great consideration was given to the direct beneficiaries of the anticipated tax revenues,
attention also was directed to the public health benefit associated with reducing obesity
and other conditions caused or exacerbated by consumption of SSBs. Significantly, at
various times and in various ways, that benefit was cited to justify taxing SSBs, rather
than some other category of commerce or retail item, in order to fund universal pre-K.
****
It is against this legal and circumstantial backdrop that this Court must determine
the validity of the PBT. In doing so, we cannot overlook our historically strict approach in
construing the scope of the taxing power conferred upon local governments by the
General Assembly, in this case by the Sterling Act:
[I]t is a principle universally declared and admitted that municipal
corporations can levy no taxes, general or special, upon inhabitants, or their
property, unless the power be plainly and unmistakably conferred. And the
grant of such right is to be strictly construed, and not extended by
implication. . . . In cases of doubt the construction should be against the
government.
Murray v. City of Phila., 71 A.2d 280, 283 (Pa. 1950). The Murray Court brought this
principle to bear on whether the tax there at issue exceeded the Sterling Act’s
authorization by amounting to “double taxation of the same thing.” Id. at 284. This Court
noted that, “[i]n determining whether double taxation results, whether the city tax conflicts
with that imposed by the state [for Sterling Act purposes], the practical operation of the
two taxes is controlling as against a mere difference in terminology from time to time
employed in describing taxes in various cases.” Id. (emphasis added).
Our approach to examining whether a new local tax is duplicative under the
Sterling Act has remained practical, perhaps to a fault, as illustrated by the Majority’s brief
[J-31A-2018 and J-31B-2018] [MO: Saylor, C.J.] - 9
effort to demonstrate how the incidence test brings our disparate case law into harmony,
an effort that, unsurprisingly, yields a pointillist account revealing no clear motif. See Maj.
Op. at 18 n.14 (confessing that “[w]e are under no illusion concerning the intuitiveness
and cohesiveness of the decisions in the Sterling Act line on various points.”).11 The
acknowledged elusiveness of clear guidance is most evident in this Court’s failure long
ago to reach even the shadow of consensus in deciding United Tavern Owners of
Philadelphia, 272 A.2d 868 (1971), the case whose facts most closely resemble those
before us today.12
These caveats aside, I have no objection to the Majority’s first interpretive step,
which focuses upon the utility of Nabisco’s “incidence test.” Echoing Murray, the Nabisco
Court described the test as follows:
In determining whether a tax duplicates another tax and results in double
taxation prohibited to local taxing authorities, the operation or incidence of
the two taxes is controlling as against mere differences in terminology from
time to time employed in describing taxes in various cases. The incidence
of a tax embraces the subject matter thereof and, more important, the
measure of the tax, i.e., the base or yardstick by which the tax is applied.
11 The Majority’s concession in this regard arguably contradicts its later observation
that its “determination that the [PBT] survives scrutiny under a plain meaning application
of the Sterling Act.” Maj. Op. at 22 n.19. The complexity and arguable irreconcilability of
past precedent, as well as aspects of my discussion below, strongly suggest that the text
of the Sterling Act is anything but a model of clarity.
12 Justice O’Brien authored the lead opinion, which no justice joined. Chief Justice
Bell and Justice Roberts concurred only in the result. Justice Pomeroy filed a dissent in
which Justice Eagen joined. Justices Jones and Cohen did not participate in the case.
The similarity of United Tavern Owners leads the parties to debate at length which of the
views expressed in that case should prevail, which prompts the Majority to discuss that
1971 decision at greater length than any other Pennsylvania case. See Maj. Op. at 22-
23. I discern little if any analytic utility in United Tavern Owners, a case that failed to
generate any precedential holding. Rather, I believe that we must wrestle with such rules
as we can glean from the Sterling Act itself and the principles it embodies, moreso than
with our inapposite and non-binding case law on the matter, which offers scant guidance.
[J-31A-2018 and J-31B-2018] [MO: Saylor, C.J.] - 10
Nabisco, 136 A.2d at 825-26 (emphasis added). The Majority describes this principle as
the “legal incidence” test. In so many words, the legal incidence test asks what is taxed
and how that “it” is taxed.
The Majority distinguishes the legal incidence test from what it calls the “economic
incidence” test. The Majority notes that, in Jon Wanamaker, Philadelphia v. School
District of Philadelphia, 274 A.2d 524 (Pa. 1971), this Court distinguished between the
“economic incidence” of a local tax imposed upon the use of commercial and industrial
property, which fell upon the property, and the legal incidence, which was driven not by
the property itself but by its use. Relative to this case, the Majority implies, an economic
incidence test would concern itself with whether what appears as a distribution tax in fact
amounts to a sales tax—as asserted by the Plaintiff-Objectors herein—because it will be
passed through from distributor to retailer to consumer. Citing Wanamaker and an
unrelated United States Supreme Court opinion, the Majority concludes that the Sterling
Act offers no suggestion that Pennsylvania courts should “embark upon such an inquiry
into economic incidence for purposes of evaluating the permissibility of local taxes.” Maj.
Op. at 16.13
Taken in isolation, I do not find this argument compelling, but I have no issue with
the cautionary approach it embodies. It certainly is true that, if one sufficiently broadens
one’s focus, one can trace the vast majority of taxes of any kind to the final participant in
a given chain of commerce. Cf. Maj. Op. at 18 (quoting Commonwealth v. Neiman, 84
13 Neither does the Sterling Act specifically instruct courts to consider the “base or
yardstick by which the tax is applied,” as Nabisco prescribes. See Nabisco, 136 A.2d at
826. It also bears noting that, to the extent the legal incidence test relies upon the person
or entity upon whom the tax is imposed to distinguish one tax from another, it cannot
identify a payor without in some sense engaging in what the Majority calls an “economic
incidence” analysis. This is not to say that the downstream effect of a given tax should
be dispositive, or even should predominate, in any inquiry of tax sameness. It is merely
to suggest that what the Majority treats as a bright-line distinction between economic
incidence and legal incidence proves murky in practice.
[J-31A-2018 and J-31B-2018] [MO: Saylor, C.J.] - 11
A.3d 603, 612 (Pa. 2013)) (“[M]atters that are distinct, for instance at a transactional level,
can often be described as having a single subject ‘if the point of view be carried back far
enough.’”). That is to say, for example, that one can make a persuasive argument in the
abstract that the income tax burden imposed upon the chief executive of a given soft drink
manufacturer has a direct, if miniscule, effect on the price at retail of a can of that soft
drink. But merely citing the “legal incidence” approach and calling it a “reasonably bright
line standard” does not immunize that test from similar difficulties, especially when one
inquires as to “the subject matter” of the tax, which, too, can be described so broadly as
to encompass whole swaths of commercial activity or so narrowly as to all but eliminate
any practical likelihood that any tax will be deemed duplicative of another, provided they
differ in any trivial detail. In either instance, there remains a degree of discretion in the
application, a flexibility that can become an unprincipled stain on the governing
jurisprudence or, duly restrained, may serve as a tremendous asset in fairly
circumscribing a municipality’s taxing authority where, as in this case, local duplication of
a state tax is verboten.
I am sensitive to the limited utility of an “economic incidence” test. As noted above,
applying such a test at a sufficient level of generality would lead one to conclude that
virtually any tax Philadelphia might impose would in some sense be duplicative of some
other state tax, since every cost of doing business will tend to flow downstream to the
end-purchaser. Thus, if that consideration is to enter into our analysis at all, it must be
utilized narrowly and with great care. Still, I cannot endorse the Majority’s categorical
rejection of the relevance of the economic effect of a given tax for purposes of the Sterling
Act inquiry, given our oft-repeated concern for the practical effect of the tax rather than
how it is described or how it nominally operates. Who benefits and who is burdened are
essential inquiries in discerning the true nature of any tax. Simply to assert that he who
[J-31A-2018 and J-31B-2018] [MO: Saylor, C.J.] - 12
superficially bears the immediate burden of a given tax is the only burdened party, or
even the chiefly burdened party, is to undermine our time-honored emphasis upon the
practical effects of a given tax. Certainly, who bears the brunt of the tax in the final tally
has some relevance to the question, even if courts employ that tool with sensitivity to its
explanatory limitations.
The Sterling Act limits the taxing authority it confers by denying Philadelphia “the
authority to levy, assess and collect . . . any tax on a privilege, transaction, subject or
occupation, or on personal property, which is now or may hereafter become subject to a
State tax or license fee.” 53 P.S. § 15971(a). Plain language strips most of the
enumerated categories of taxation of any relevance to this case, leaving us to focus upon
the two that remain: whether the distribution “transaction,” as such, is impermissibly
duplicative of the state sales tax; or, whether the actual “subject” of the distribution tax
echoes the “subject” of the state tax. In assessing the import of these terms, we must
give distinct effect to each of them. See 1 Pa.C.S. §§ 1921(a); White Deer Twp. v. Napp,
985 A.2d 745, 760-61 (Pa. 2009) (observing that we must interpret a statute, “if possible,
to give effect to all its provisions,” requiring us to give each term in a statute independent
meaning and effect).
The answer to the “transaction” inquiry is clear: The point of imposition and
collection, as well as the measure, of the distribution tax plainly differ materially from the
sales tax as applied to retail soft drink purchases. Thus, if there is impermissible
duplication, it lies in the conclusion that the PBT and state sales tax, under the instant
circumstances, have the same “subject.” For present purposes, the question presented
is whether the subject of the PBT is, practically, the distribution or retail sale of SSBs.
The Majority relies ultimately on a fairly rigid application of the Nabisco rubric,
noting the distinction between the putative subject of the PBT (distribution versus retail
[J-31A-2018 and J-31B-2018] [MO: Saylor, C.J.] - 13
sales), the different measures employed to assess each (volume versus a percentage of
retail price), and the distinct putative payors of the tax (distributors versus consumers).
These, the Majority would conclude, obviate any suggestion that the “subject” of the PBT
is duplicative of the “subject” of the sales tax.
Whatever its superficial appeal, I find this analysis wanting in practice. Informed
by our continuing emphasis on assessing the defining aspects of a tax by how it actually
operates in the world, I am compelled to conclude that the true and intended subject of
the PBT is, and has always been, the retail purchase and consumption of SSBs. To find
otherwise is to insist that, in knowingly deterring the purchase of soft drinks by effectively
ensuring some increase in the retail price, it was merely the curtailment of their distribution
that the Council actually effectuated and intended. This neat conclusion is one that the
text of the PBT cannot bear and in fact does not sustain, given how quickly that text
wanders afield of that particular commercial function (i.e., distribution) whenever it must
in order to ensure that not a single drop of SSB is sold at retail within the jurisdiction
without first paying the prescribed assessment. To make sense of the intended reduction
in consumption coupled with the raising of revenue upon the backs of the end-purchasers,
which the City Council so certainly anticipated that it built that reduction into its
calculations, the distribution point must have been understood merely as where the tax
would be imposed for administrative purposes (with the ancillary benefit that it would
furnish Council the best chance of avoiding Sterling Act invalidation).14 Nor is it
14 The Majority endorses the United States Supreme Court’s concern, stated in
Oklahoma Tax Commission v. Chickasaw Nation, 515 U.S. 450 (1995), that, “if we were
to make ‘economic reality’ our guide, we might be obligated to consider, for example, how
completely retailers can pass along tax increases without sacrificing sales volume—a
complicated matter dependent on the characteristics of the market for the relevant
product.” Maj. Op. at 15 (quoting Chickasaw Nation, 515 U.S. at 459-60). Respectfully,
while this may present an intractable problem in another case, I disagree that it
establishes the necessity of a categorical exclusion of such considerations, especially
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persuasive to find a dispositive distinction in the method of calculation—volumetric versus
price-driven. In either case, revenues raised and consumption deterred are
fundamentally and inextricably responsive to the volume of SSBs purchased at retail.
Simply put, I do not find the Majority’s effort to find the safe harbor of clarity in the
bright-line of the “legal incidence” test reconcilable with a test requiring the assessment
of a tax’s practical effect. Indeed, speaking generally, I find irreconcilable the very notions
of a practical inquiry and a bright-line test, and I discern no substantive benefit in this
context to abandoning our long-standing if messier approach to such questions. For this
reason, I find it incongruous to imply, as the Majority does, that we cannot seek a given
levy’s “legal incidence” by looking beyond nomenclature to focus upon its foreseen, and
even intended, effects—regardless of whether that entails some consideration of
economic effects. The “subject” of the PBT is SSB consumption at retail. The only way
to find otherwise is to indulge the convenient fiction of calling the PBT a distribution tax,
despite the fact that the levy does not even use that terminology in the critical passage
and despite the fact that the PBT suggests no concern for whether it actually is levied on
distribution as such, but only the concern that no SSB intended for retail sale eludes its
grasp.
The Council and the Mayor, guided in part by officials and experts who anticipated
and saw social good in reducing the consumption of SSBs, enacted the PBT to realize
the dual benefits of funding universal pre-K education and improving public health.
Although the PBT’s advocates often foregrounded the educational benefits, they treated
where, as here, the text of the ordinance as well as the record so clearly reflect a
conscious concern for, and arguably the desire for, the trickling down of the PBT’s levy to
the retail consumer. It is implicit in any practical inquiry that its scope and contour are
case-specific. It seems to me uncontroversial that a particular economic consideration
which a court finds germane in one case may be too problematic or ill-fitting to incorporate
into the court’s analysis in a different case.
[J-31A-2018 and J-31B-2018] [MO: Saylor, C.J.] - 15
as complementary, rather than merely incidental, the public health benefits associated
with substantial reductions in SSB consumption, which they anticipated would manifest
disproportionately in the very same communities that would receive the lion’s share of the
PBT revenues collected. Nowhere is it suggested that they treated this as a happy
accident. Nor should we. The Sterling Act provided sufficient authority for Council to
generate new revenue by any number of means—and the political actors behind the PBT
selected SSBs as the most suitable. We would unmoor Council’s choice, as embodied
in the text of the PBT and reinforced by the process of its development and enactment,
from its full context were we to pretend that deterring SSB consumption was merely
incidental. I do not discern how we may indulge this fiction. The only conventional
mechanism to deter consumption is to increase the effective retail cost of SSBs. By
imposing a substantial tax specifically upon SSB “distribution,” Council literally banked on
that effect.
It elevates form over substance to grant Philadelphia the benefit of its self-serving
description, when to do so obscures the tax’s foreseeable and intended effect—one that
the Mayor and Council, in fact, studied in gauging the prudence and effectiveness of an
SSB tax in the first instance, one that was designed to affect all avenues by which a can
of cola might arrive in a bodega cooler. Furthermore, to split hairs based upon
Philadelphia’s chosen characterization confounds our time-honored interpretive
presumptions, which unerringly favor the putative taxpayer when the scope of a tax-
authorizing statute is in question.
I am sensitive to the challenges facing cities seeking to finance their own needs,
especially given the limited degree to which funds flow from state coffers to address those
needs. Furthermore, I am mindful that, in answer to this difficulty, the General Assembly
with the Sterling Act long ago invited Philadelphia to finance its own initiatives by
[J-31A-2018 and J-31B-2018] [MO: Saylor, C.J.] - 16
collecting revenues from those who live and do business within the city limits. But the
Sterling Act’s grant of broad taxing authority is not absolute, and it specifically precludes
Philadelphia from piggybacking on extant state taxes. The General Assembly has seen
fit to impose a sales tax on certain goods, including a class of beverages that overlaps
heavily with SSBs. In imposing a tax that foreseeably would be borne in substantial part
by the retail purchaser, the City of Philadelphia knowingly stacked the PBT upon the state
sales tax, and in so doing duplicatively taxed retail trade in soft drinks, a “subject” already
burdened by the state sales tax. For these reasons, I believe we are bound to find that
the PBT impermissibly imposes upon the state sales tax in violation of the Sterling Act.
A rose by any other name smells just as sweet, and, whether styled a retail tax or
a distribution tax, the levy here at bar, like the state sales tax, raises revenue specifically
by burdening the proceeds from the retail sale of sugar-sweetened beverages. This the
Sterling Act does not allow. I respectfully dissent.
[J-31A-2018 and J-31B-2018] [MO: Saylor, C.J.] - 17