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California bid to block local sugary beverage taxes loses fizz on appeal

The appeals court rejected arguments by the state and Big Soda that no cities had yet been harmed, finding no cities would ever dare to risk the exorbitant penalties for slapping sugary drinks with taxes.

SACRAMENTO, Calif. (CN) — A state appeals court in Sacramento rejected California's bid to overturn a ruling from two years ago that stopped the state from outlawing cities and local municipalities from enacting taxes on sugary sodas.

In 2014, voters in Berkeley approved a ballot measure to tax distributors of “sugar-sweetened beverages” like soda, because consumption of those beverages increased childhood obesity, diabetes, tooth decay, and other community health problems. Soon after, other cities around the San Francisco Bay Area enacted similar measures.    

In response, the beverage industry launched an initiative to amend the California Constitution to curtail local governments' abilities to enact new taxes. The sponsors of the initiative agreed to drop the measure if the state enacted a law banning charter cities, counties and local governments from enacting new taxes on groceries, including nonalcoholic sugar-sweetened beverages, until 2023. The Legislature then passed the Keep Groceries Affordable Act of 2018. 

Under the law, a city that tried to enact a tax on groceries or soda would pay a hefty penalty: it would lose all of its revenue from sales and use taxes. 

The penalties were only going to be imposed on charter cities, cities in the state that have their own charter documents that allow them to make and enforce their own ordinances and laws, including the ability to enforce their own local taxes. Other cities in the state are governed as general law cities, which means their local laws have to be more tied to state statutes and state administrative regulations.  

Soon after the bill passed, a nonprofit group in the Central Valley city of Stockton dropped its initiative to tax sugary drinks, which already had 6,000 signatures, after learning 35% of the city’s budget came from sales and use taxes.

In 2018, Fresno-based nonprofit Cultiva La Salud and Santa Cruz City Councilmember Martine Watkins sued the state, arguing that the penalties stipulated by the Keep Groceries Affordable Act were unconstitutional. In 2021, a Sacramento County Superior Court judge agreed and struck down the law.

The state appealed, arguing the ruling was premature because no city had violated the act or had its sales and use taxes withheld. The appeals court rejected the appeal Monday.  

“Only at that time, they claim, can a court resolve whether the Groceries Act’s terms and the local tax actually conflict,” Third Appellate District Justice Stacy Boulware Eurie wrote for the three-judge panel. “We find differently. The American Beverage amici’s logic, if accepted, would provide a framework for insulating laws from judicial review: The state could enact laws — even constitutionally suspect ones — that threaten exorbitant penalties against those who violate their terms; and because no one would likely violate these laws for fear of the penalties, no claim would ever be ripe for review. We reject this approach.”

The state also argued the lower court misunderstood the Groceries Act’s penalties. Eurie rejected that argument, finding the penalties would improperly penalize charter cities for exercising their constitutional rights.   

“The Legislature wanted to discourage charter cities from enacting a tax, fee, or assessment on groceries, even if it could not lawfully prohibit them from doing so. That reading explains why the Legislature directed the penalty toward charter cities only— the one local agency with home rule authority under Article XI, Section 5. It explains why the Legislature imposed the penalty only when a charter city “valid[ly] exercise[s]” its constitutional powers under the home rule doctrine. And it explains why the Legislature believed the penalty necessary in the first place,” Eurie wrote for the panel.

Neither state Attorney General Rob Bonta's office, Cultiva La Salud nor Councilmember Watkins returned requests for comment on the ruling.

Categories:Appeals, Government, Regional

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