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Philadelphia’s Soda Tax – What McDonald’s Franchisees Need to Know

Posted by Anthony Buss on Thu, Feb 23, 2017

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soda tax.jpgThe City of Philadelphia’s Sugar Sweetened Beverage Tax became effective January 1, 2017. This is the first “soda” tax passed by a major city. The City passed the tax, estimated to generate over $90 million annually, in an effort to provide additional funding to schools, parks, recreation centers, and libraries.

The new law defines two groups that will be impacted from the tax. Specifically Distributors and Dealers. A Distributor is any person who supplies sugar-sweetened beverage to a dealer. A Dealer is any person engaged in the business of selling sugar-sweetened beverage for retail sale in the City, including but not limited to restaurants, retail stores, street vendors, owners and operators of vending machines, and distributors who engage in retail sales.

Many different types of drinks are subject and will be assessed the new tax including but not limited to sodas, sports drinks, non 100% fruit drinks, flavored water, energy drinks, pre-sweetened coffee and teas, and non-alcoholic cocktail mixers among others.

The tax is collected and paid by registered Distributors. A Dealer will not need to register to pay the tax unless they purchase from an unregistered Distributor. The tax is calculated at a rate of $0.015 per ounce of sweetened beverage.

READ MORE: How McDonald’s Franchisees Can Best Manage Risk

For a Dealer that has multiple locations both inside and outside of the City, it is very important to communicate to the Distributor what product will be delivered to each location to ensure the tax is assessed and calculated correctly. A tax return is filed online by the 20th of the month for the prior month activity.

The City of Philadelphia Department of Revenue intends to have both investigators and auditors visit Distributors and Dealers to examine records and supporting documentation to identify under-reporting and non-compliance. The City will assess fines and penalties where appropriate and may use all available means to force collection if left unpaid.

What should a Dealer, and specifically a McDonald’s Owner/Operator do? Proper planning and communication are important. Processes and internal controls should be in place that ensures inventory is properly ordered and identified to ensure compliance with the new tax. Maintaining clear supporting documentation for six years will be essential should your business location be selected for audit by the City. Finally, reviewing your menu board pricing and also that of your competitors will be critical.

Notably the recently enacted tax was upheld and declared legal in the Philadelphia Court of Common Pleas. Further legal challenges and appeals are presently under way.

Please consult your trusted business advisor for assistance and questions. In addition, the City of Philadelphia has provided assistance at revenue@phila.gov or by calling (215) 686-6600. We have worked with many McDonald’s Owner/Operators and can assist with any questions or concerns and proper planning.

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This communication is designed to provide accurate and authoritative information in regard to the subject matter covered. However, the general information herein is not intended to be nor should it be treated as tax, legal, or accounting advice. Additional issues could exist that would affect the tax treatment of a specific transaction and, therefore, taxpayers should seek advice from an independent tax advisor based on their particular circumstances before acting on any information presented. This information is not intended to be nor can it be used by any taxpayer for the purposes of avoiding tax penalties.

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