MEMORANDUM

FROM: Marc J. Sonnenfeld and John P. Lavelle, Jr.

DATE: May 24, 2018
SUBJECT: Concerns Expressed by City Council President Clarke Concerning Philadelphia Liquor By
The Drink Tax

Recent news reports have recounted concerns expressed by Philadelphia City Council President
Darrell Clarke that the City of Philadelphia’s 10 percent tax on liquor sold by the drink could be challenged
if Pa. House Bill No. 2241, the bill currently being considered by the General Assembly to preempt the
Philadelphia Sugar-Sweetened Beverage Tax, were enacted into law. These concerns are not well-
founded, as House Bill No. 2241, if enacted, would not affect the City’s authority to impose the liquor by
the drink tax.

The City’s authority to impose the liquor by the drink tax was specifically granted by the General
Assembly in the First Class School District Liquor Sales Tax Act of 1971, Act of June 10, 1971, P.L. 153,
No. 7, 53 P.S. § 16131 et seq. The Act permits the City of Philadelphia to impose a tax on retail sale of
“liquor or malt and brewed beverages” only of “ten percent of the sale price, which tax shall be collected
by the vendor from the purchaser.” Act, Section 2(4), Section (4); 53 P.S. §§ 16132(4), 16134. See
Licensed Beverage Association of Phila. v. Board of Education of the School District of Phila., 680 A.2d
1198, 1200 (Cmmwlth. Ct. 1996) (in rejecting challenge to City’s liquor by the drink tax, recognizing that
the “enabling legislation” for the tax was the First Class School District Liquor Sales Tax Act of 1971). In
other words, the liquor by the drink tax was not enacted by the City pursuant to any purported authority
granted under the Sterling Act, Act of August 5, 1932, P.L. 45, as amended, 53 P.S. § 15971.

Pa. House Bill No. 2241 in its current form (Printer’s No. 3290) would not affect the City’s
authority to impose the liquor by the drink tax under the First Class School District Liquor Sales Tax Act of
1971. To the contrary, the Bill as drafted specifically excludes alcoholic beverages and liquors from its
scope. The Bill proposes to prohibit, except for specified exceptions, imposition by political subdivisions
of taxes on “food and beverages”, “food and beverage containers”, and the “supply, acquisition, delivery,
distribution or transport of food and beverages” or “food and beverage containers”. HB 2241, §
8733(a)(1)-(4). The Bill specifically excludes, however, “malt or brewed alcoholic beverages” and
“spirituous and vinous liquors” from the definition of “food and beverage”. HB 2241, § 8732. As a result,
the Bill would have no effect on the City’s authority to tax “malt or brewed alcoholic beverages” and
“spirituous and vinous liquors” granted in the First Class School District Liquor Sales Tax Act of 1971.

Finally, it is also worth noting that if the pending appeal to the Pennsylvania Supreme Court in
Williams v. City of Philadelphia is successful, and the Sugar-Sweetened Beverage Tax is stricken as
beyond the authority granted under the Sterling Act, such a ruling would not affect the City’s authority to
impose the liquor by the drink tax. Because the General Assembly specifically granted the City authority
to impose the liquor by the drink tax in the First Class School District Liquor Sales Tax Act of 1971, a
ruling recognizing the limits of the City’s taxing authority under the Sterling Act would not negate or
restrict the City’s authority to impose the liquor by the drink tax. As we have argued in the Supreme
Court, if the City wished to obtain authority to impose the Sugar-Sweetened Beverage Tax, it should have

Morgan, Lewis & Bockius LLP

DB1/ 97665882.2
 requested such authority from the General Assembly – as it did for liquor by the drink, and obtained in
the First Class School District Liquor Sales Tax Act of 1971.

JPL:dms

Morgan, Lewis & Bockius LLP

DB1/ 97665882.2 -2-