The beachside community of Santa Cruz implemented a sugary drinks tax on Thursday, marking a significant move since California’s 2018 legislation that prohibited local grocery taxes. This 2-cent-per-ounce tax, approved by voters in November, is notable as the first such tax since the legislative ban, which was influenced by the beverage industry.
The American Beverage Association, having campaigned extensively against the tax in the city of 60,000 residents, declared the measure illegal and predicted it would strain city resources. Despite potential legal challenges, Santa Cruz officials are ready to contest the state’s preemption law, hoping the initiative will encourage other regions to adopt similar measures. The tax is intended to reduce sugar consumption, especially among children and teens, and fund health programs and community projects.
Santa Cruz City Council Vice Mayor, Shebreh Kalantari-Johnson, emphasized the importance of democratic action and resisting special interests to maintain community revenue independence. The trade organization representing major beverage companies, including Coca-Cola and PepsiCo, announced it is evaluating future steps.
The tax faced opposition from a coalition that included labor unions and small businesses who argued it would unfairly impact working families already struggling with high costs, according to Steven Maviglio, an American Beverage Association spokesperson.
Advocates have long pushed for taxes on sugar-sweetened beverages, arguing that increased prices would decrease consumption of products linked to obesity, heart disease, and stroke. Critics argue that the tax disproportionately affects low-income families and local businesses.
In 2014, Berkeley implemented the country’s first tax on sugar-sweetened beverages, and several cities followed, such as San Francisco, Oakland, Albany, Philadelphia, Seattle, and Boulder, Colorado. No state has enacted such a tax at the state level, although attempts have been made.
In 2018, California’s legislators passed the Keep Groceries Affordable Act, which banned local taxes on sodas and sugary drinks until 2031. This was part of a compromise to avoid a beverage industry-backed ballot measure that would have made it more challenging for cities to raise taxes.
Santa Cruz initially abandoned its tax plans but persisted. A legal challenge in 2018 sought to overturn the Groceries Act’s penalty provision against charter cities, arguing it unlawfully restricted local governance. Although a state appeals court deemed the penalty provision unconstitutional in 2023, it did not address the overall preemption.
In June, Santa Cruz placed the tax measure on the ballot, and in November, nearly 32,000 voters passed it with a 52 to 48 margin. The “no” campaign spent $2.8 million, while the “yes” campaign spent under $100,000.
The tax targets sodas, ice teas, sports drinks, and any non-alcoholic beverage with added caloric sweeteners containing 40 calories or more per 12 fluid ounces. Small businesses with less than $500,000 in annual gross receipts are exempt.
Carina Moreno, a restaurant owner, expressed disappointment at the measure’s approval, citing increased costs for sugary drinks as a concern.
Advocates of the tax view the Santa Cruz decision as a significant achievement, considering the resources spent by the opposition. Dr. John Maa, chair of the American Heart Association’s advisory committee in California, highlighted the potential for success in smaller communities with strong grassroots support.
This report was initially published on Fortune.com.
