Our Northwest Economy
12:15 pm
Thu April 29, 2010

Wash. Democrats Admit Goof On Soda Pop Tax; Industry Considers Ballot Repeal

OLYMPIA, Wash. – If you buy soda pop in Washington, soon you'll be making a contribution to help rebalance the state budget. In the final hours of the legislature's special session, majority Democrats imposed a two-cents-per-can excise tax on soda. But now the carbonated beverage industry is considering an effort to repeal the pop tax this November. One of its arguments: the tax law contains a technical goof.

At Harbor Pacific Bottling in Elma, Washington, a forklift loads Pepsi products onto a truck.

General Manager Tim Martin ticks off a list of the drinks his company distributes to stores along the Washington coast.

Tim Martin: “We have carbonated soft drinks, we have tea, we have Starbucks that we sell, water, juices. Essentially whatever our consumers want, we want to try to be able to provide.”

Harbor Pacific Bottling is a family affair. Martin's grandfather, father and uncle bought the franchise in the 50s. Today Martin and his siblings run the business. They employ 45 people. These are good jobs with health insurance in a pocket of the state with high unemployment. But now Martin warns, Washington's new soda pop tax may force him to lay-off some of his workers. That's because he says soda drinkers are especially price sensitive.

Tim Martin: “Our experience is that when the price goes up, our volumes will decline."

The tax is just a couple of pennies per 12 ounces levied on the bottler. But Martin says by the time it reaches the consumer it could end up being more than that.

Tim Martin: “We have to raise our price more than just the excise tax because we know that our volume is going to go down and we have fixed costs that we have to cover. So we're going to have to raise it more than that two cents per twelve ounce to try to compensate for that.”

Martin is doubly upset because he believed his company would be shielded from this new excise tax. That's because Harbor Pacific Bottling does less than ten million dollars a year in business. Majority Democrats in the legislature and Governor Chris Gregoire thought they exempted smaller operators like Martin. But an hour before Gregoire signed the tax into law, she found out there was a glitch in the language of the tax bill. Turns out the exemption only applies to bottling facilities. Technically Martin is a distributor, not a bottler. But Gregoire says she specifically had Martin in mind when she worked with the Department of Revenue to write the exemption.

Chris Gregoire: “It was adamantly my understanding what this exemption applied to. And in fact I remember specifically asking the Department of Revenue about a specific bottler and the answer was yes it would be exempt under the bill. So I don't know how the mistake was made.”

For its part, the Department of Revenue says it drafted the original language. But that House revenue writers re-tooled the exemption language. Either way, Department of Revenue spokesman Mike Gowrylow says clearly there was confusion in Olympia about how the soda pop industry works and specifically, what's the definition of a bottler.

Mike Gowrylow:“I think the problem came up in that some companies like Tim Martin's were describing themselves as small bottlers, but it turns out they're not bottlers. And they may have been at one point but now they're co-owners in a centralized bottling company which does get the exemption, but not each and every distributor.”

Gowrylow notes that as a distributor Martin won't actually pay the excise tax directly. But he will end up paying it through higher costs passed along by the bottling plant he shares with other distributors. The confusion has lawmakers like House Majority Leader Lynn Kessler, whose district includes Harbor Pacific Bottling, offering mea culpas.

Lynn Kessler: “I feel personally very, very bad about all of this.”

So does State Senator Ed Murray, who helped craft the final tax package. However, he rejects the criticism that Democrats are to blame for rushing the soda tax through at the end of the special session. He says at the time, Democrats were being criticized for an overtime session that lasted almost a month.

Ed Murray: “Now we're being criticized for moving too quickly. Obviously in complex situations like this sixty days isn't enough. And obviously 89 days wasn't enough either.”

The reality is, exemption or no exemption, the soda pop industry was unlikely to take this new tax lying down. Even though it's temporary - just three years - there's already serious talk of asking Washington voters to repeal the tax this November. Perhaps along with some of the other taxes lawmakers levied on convenience store items. Tim Martin also serves as president of the Washington Beverage Association. He says he and his colleagues will decide soon whether to mount an initiative campaign.

Tim Martin: “Personally, I'd like to do it. Cause I think as long as we're in the cross hairs it's only going to get worse.”

By that he means there's concern the tax could become permanent. Nationally, the soda industry fears that cash-strapped states will turn to fat taxes to help balance their budgets in coming years. All this means Washington could become a battleground this year in a growing national debate over soda taxes.