Monday, January 12, 2009

Indian Soda Jerks

Governor Paterson's proposed soda tax is under fire from a number of quarters; and now comes a different argument against the levy-Indian retailers who will be able to circumvent the tax (as they do with cigarettes) and thus undersell nearby local convenience outlets. As Tom Precious of the Buffalo News (via Liz) points out: "The battle over taxfree cigarettes and gasoline on Indian reservations is now expanding to another commodity: soda and other sweetened drinks. Gov. David A. Paterson intends to impose an 18 percent surcharge on soft drinks, on top of more than 8 percent in existing state and local sales taxes already collected in most counties. That would give Indian retailers who don’t collect the taxes an unfair advantage for the beverages, critics say."

So, in addition to the fact that the tax is unlikely to alter behavior in the direction of health, it may turn out that the only behavior modification achieved will be to further change consumer buying habits at the expense of small store owners: "The proposed tax imposes a surcharge on all nondiet soda. So a $1 bottle will have an 18-cent extra levy before adding the existing sales taxes. The proposal also would hit an array of other soft drinks, such as punches and sports beverages, that do not contain at least 70 percent natural fruit juice. “It is continuing to put us at a competitive disadvantage,” said Michael Newman, executive vice president of NOCO Energy Corp., which runs 32 convenience stores in Erie and Niagara counties."

Now the differentials here aren't as great as those for cigarettes-where the tax is confiscatory-they are enough for bulk purchasers to take advantage of the price gap: "No one predicts the Indian retailers would enjoy the same sort of booming Internet trade selling taxfree soda as they do with cigarettes. But they say people living near Indian reservations will stock up on soft-drink purchases at Indian shops to save 25 percent or more in state taxes and surcharges. “Our stores in Erie County would have a price disadvantage of 26.75 percent,” James Calvin, executive director of the New York Association of Convenience Stores, said of the proposed surcharge and existing sales tax rate."

In evaluating the proposal, the legislature should realize that this proposed surcharge has nothing to do with reducing anyone's waistline; and the only reduction we'll see is in the bottom line of local store owners and beverage distributors. This is a tax that doesn't deserve serious consideration from the legislature.