6 Percent Sales Tax Extended to Soft Drinks

On July 1, both the Vermont Sales and Use tax and the Meals and Rooms Tax were expanded to cover soda and vending machine purchases, respectively. The statewide sales tax of 6 percent on all drinks with added sugars is intended to discourage the consumption of sugar-added beverages and raise funds for efforts to combat obesity. Vermont is now one of 35 states with such a law. Snacks purchased through a vending machine will now be subject to a 9 percent Meals and Rooms tax.

The funds raised through this tax are intended to close the projected $113 million gap between state spending and revenue. The soft drink tax is estimated to bring in $7.9 million in revenue and the vending machine tax is estimated to make a revenue of $1 million.

While revenue is one reason to implement an excise tax of this sort, another reason is to disincentivize the consumption of unhealthy snacks and sugary drinks to reduce obesity. The idea behind an excise tax on sugar sweetened beverages is to raise the price so consumers will buy less of the product. High taxes of this sort exist on cigarettes, and according to the Robert Wood Johnson Foundation, the high tax on cigarettes has been the most effective policy in reducing cigarette use. New studies show that low taxes on soft drinks do not affect obesity rates, stated the Robert Wood Johnson Foundation. However, revenue from the tax can still be helpful in fighting obesity in other ways.

Another common objection to excise taxes is that they are regressive, meaning that they disproportionately affect those with lower incomes.

In the past, “food and food ingredients” were exempt from the 6 percent sales tax in Vermont, but Act 57 of 2015 altered their definition. Act 57 states that “‘Food and food ingredients’ does not include alcoholic beverages, tobacco, or soft drinks.” Soft drinks are defined as “nonalcoholic beverages that contain natural or artificial sweeteners.”

The law does not apply to unsweetened bottled water, seltzer, alcoholic beverages, and any drinks bought through SNAP, known in Vermont at 3SquaresVT.

The 9 percent meal tax applies to all snack purchased through vending machines, but not to those same items when purchased at a grocery store.

As a member of the Streamlined Sales Tax Agreement (SSTA), Vermont is required to use these definitions of products since they are consistent with other states’ definitions as used in their tax policies. As a result, many people believe the wording of the law to be unnecessarily confusing. This has led to problems in the law’s implementation, especially for small businesses that do not have point-of-sale software.

For example, some business owners are confused over which products require labels due to the complicated language of the law. Sam Frank of Orange told VTDigger that when he went to buy seltzer, he found that it was labeled with the 6 percent tax.

“It was kind of expensive, so I asked, ‘Why is this so much?’ and they said ‘Well, we have to tax it,’” Frank said. “I said, ‘I don’t think so.’”’

Jim Harrison, president of the Vermont Retail and Grocers Association, also finds the language of the law a barrier to its accurate implementation.

One of the problems lies in “a somewhat unclear definition where most iced teas are taxable—flavored, regular and diet—but not the ones that say unsweetened. Club soda is not a soft drink under the definition. Regular V-8 is not taxable, but V-8 Splash or Fusion is taxable. We could go on. It is confusing to customers as well as merchants, but we will continue working to get it right,” said Harrison in a statement on the Association for Convenience and Fuel Retailing website.

Director of government relations at the American Heart Association, Tina Zuk, was a proponent of the original bill proposed in January. The original proposal included a 2 cents per ounce tax on soft drinks, which would have been the first law of its kind in the country. She supports the tax as a policy to fight obesity.

“We’re really concerned about the obesity crisis in both the number of adults and kids, and we know that sugary drinks are a huge contributor to obesity so we wanted to discourage consumption,” Zuk told VTDigger. Zuk sees the tax as a way to change unhealthy behaviors.