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Local drink tax as revenue source gains momentum in Pennsylvania

September 24, 2013

The idea of a “drink tax” as a new revenue source for local governments has been percolating for a number of years, but hasn’t drawn as much attention as proposals for a local sales tax or commuter tax.

Now a local drink tax is being eyed as one of several temporary tax options to help 21 fiscally distressed municipalities in Pennsylvania stabilize revenues and emerge from Act 47 status under a definite timetable. A special task force charged with rewriting Act 47 proposes to give municipalities under the program a drink tax option to generate revenue on a temporary basis. Nanticoke, Plymouth Township, West Hazleton and Scranton are under Act 47 status in Northeastern Pennsylvania.

Under the proposal, a municipality limited to five years under Act 47 status would get special taxing authority to help ensure its exit. The municipality could petition county court to levy either a higher earned income tax (known as a commuter tax) on residents and nonresidents or one of three new tax options: the alcohol consumption tax, an increased local services tax on resident and commuters and a payroll preparation tax on business in lieu of a mercantile or business privilege tax. Choosing one tax option would forgo the other tax options.

The recommendation from the Act 47 Municipal Distress Task Force comes five years after a controversy over a new “drink tax” Allegheny County spurred some disgruntled residents to talk about staging “Whiskey Rebellion II.”

The county executive was the target of protests with not-welcome signs hung in some bars.

Allegheny County’s drink tax remains in place today to help fund mass transit as the controversy has faded. The tax rate has dropped to 7 percent from an initial 10 percent.

Philadelphia has a drink tax to help pay for public education.

An advocacy group for municipalities views the task force recommendations as a major step forward even though it suggested several years ago that similar tax options be made available to all municipalities.

“It would certainly give us the opportunity to see how they work in Act 47 communities,” said Amy Sturges, director of government relations for the Pennsylvania Municipal League.

In 2010, the League published a “Core Communities in Crisis” report recommending a menu of tax options for all municipalities, including a 10 percent tax on retail alcohol sales to fund public safety services tied to alcohol consumption, a sugared drink tax to fund health and recreation programs, a higher local services tax and one percent sales tax option to help pay for municipal debt and core services.

The Act 47 task force developed these tax options so large and small distressed municipalities with various fiscal problems, economies and populations could pick the option best suited to help them exit the program, said Rep. Chris Ross, R-Unionville, the task force co-chairman.

He suggested a drink tax would be a voluntary tax.

Whether an Act 47 municipality would choose a drink tax could depend upon such factors as the number of liquor licensees and whether the municipality is dry or not.

Local officials would have to determine whether they have enough bars and restaurants in a downtown to make a drink tax worthwhile, said Sturges.

The end result of this tax would be to put more small taverns out of business, said Amy Christie, executive director of the Pennsylvania Tavern Association. That would be especially so where a tavern in a municipality levying the tax is across the street from one that doesn’t.

A better solution is to allow taverns to operate small games of chance and tax a share of the revenue, she said.

Source: Citizens Voice