LAO Publishes Report on Taxation of SSBs

The California Legislative Analyst’s Office (LAO) this week released a report, “Taxation of Sugary Drinks,” which examines the purpose of sugar-sweetened beverage (SSB) taxes and key design decisions for the Legislature to consider. Recall, AB 1838 was a budget trailer bill that was passed and signed into law in June 2018 that bans the ability of local jurisdictions to impose taxes on sodas and SSBs until 2031.

The LAO’s report determines SSB taxes have a fiscal purpose (tax revenue) and a policy purpose (health outcomes) and outlines the following considerations:

• Defining the Tax Base – Determining what SSBs to tax and whether to exclude certain drinks (e.g. “diet” drinks, dairy-based drinks, juices)
• Choosing the Type of Tax – Setting taxes based on volume of drink, amount of sugar in drink, or a tiered tax that incorporates both volume and sugar amount
• Establishing an Initial Tax Rate – Setting a statewide SSB tax that would reduce sugary drink consumption
• Adjusting the Tax Rate Over Time – Indexing the tax rate to account for inflation to ensure fiscal and policy effectiveness of the tax over time
• Allocating Tax Revenues – Determining how and where to dedicate tax revenues

Included in the report is an examination of local jurisdiction, state, and federal nonalcoholic drink taxes in the U.S. and abroad. The LAO found that, based on nationwide SSB taxes implemented in places such as Mexico and Chile, a statewide tax of two cents per ounce would likely increase SSB prices by 15 to 25 percent and would likely reduce consumption of those beverages by 15 to 35 percent. The full LAO report is available here.