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Legislative Memo

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BILL:

S.6610-a/A.9710-A Part C

Support

SUBJECT:

Tax on Soft Drinks

 

DATE:

March 8, 2010

 

The Business Council opposes this executive budget proposal that would impose a one cent per ounce tax on soda syrups, bottled soft drinks, and soft drink powders.

A sugar beverage tax, which would be imposed in addition to the existing state sales tax of four percent plus a local tax of up to 5.5 percent in some jurisdictions, and the deposit, is designed to offset government costs related to obesity.

This additional beverage tax on soft drinks would have a negative economic impact all across New York. It would amount to lost jobs and the dislocation of existing businesses. Such a tax would raise prices on drinks leading to lost sales and jobs not only in the beverage industry but would be a loss to other businesses that supply these companies and sell their products.

When demand for a product drops substantially, the result will be a loss in jobs, as producers respond to the drop in demand by cutting back on production. This happens because as the price of a good increases demand for the product will drop, as consumers either purchase substitutes or stop buying the product altogether.

 Aside from a loss of jobs in the thousands, such a measure would also put New York retailers at a competitive disadvantage with neighboring states, particularly those retailers close to border areas, where price differentials with neighboring states would be most apparent. The last thing we need is to see consumers shopping in neighboring lower-taxed jurisdictions (states). Given the disproportionate impact of the recession on these counties already, especially in the Southern Tier, the proposed tax would be devastating to retailers and beverage interests.

The State of New York shares contiguous borders with five other states – Connecticut, Massachusetts, New Jersey, Pennsylvania and Vermont – as well as Canada.

Sales tax Breakdown

This means that, even at present, New York retailers are at a disadvantage relative to their cross-border competitors, with store owners near the Vermont and Massachusetts borders facing a seven to eight percent tax burden where these other two states have no sales tax. An additional tax on sugar-sweetened soft drinks will only exacerbate this disadvantage.

In addition, New York retailers face an internal cross-border dilemma that store owners in many other states do not face. Several New York counties such as Oneida County, which has the highest combined state and local sales taxes in the entire state at 9.5%, is in close proximity to Oneida Indian tribal lands, as are the Counties of Chautauqua, Erie and Allegany.

Retailers in this region of the state have been battling with unfair competition from illicit purchases of gasoline and cigarettes by non-Native Americans from Native retailers for years. State sales taxes do not apply to purchases made in tribal stores from Native American consumers. Non-Native Americans, however, are obligated to pay such taxes, though enforcement has been a long-standing problem for state and county governments. These proposed taxes will likely induce still more customers to make their purchases in lower-tax jurisdictions, and will hit stores near tribal stores even worse.

The loss of sales will also translate into a loss of revenues for the state. While the budget proposal is designed to raise additional state revenue this proposed tax will result in a reduction of potentially hundreds of millions of dollars in economic activity. Thus the cost of generating an estimated $465 million in revenue could actually mean a net loss in revenue when factoring in the losses to the economy.

For these reasons the Business Council respectfully opposes S.6610-A/A.9710-A Part C.