What Is a Sugar Tax and How Does It Work?

A sugar tax is a local excise tax that adds roughly one to two cents per fluid ounce to the wholesale cost of sodas, energy drinks, sports drinks, and other sweetened beverages. In the United States it exists only at the city level (plus one tribal nation), and there is no federal or statewide version. The tax is legally owed by distributors rather than paid by shoppers at the register, but research across multiple jurisdictions has found that about 70 percent of it ends up baked into the retail shelf price.

Where Sugar Taxes Apply in the U.S.

Eight cities and the Navajo Nation currently collect a sweetened beverage tax. Rates and covered products vary by ordinance.

What Beverages the Tax Covers

The trigger is the presence of an added sweetener, not the calorie count. Sodas, energy drinks, sports drinks, and pre-sweetened teas and coffees all qualify. Seattle’s ordinance lists honey alongside sucrose, fructose, glucose, corn syrup, and high-fructose corn syrup as covered sweeteners, and gives the city’s finance director authority to designate additional substances later.7Municode Library. Chapter 5.53 – Sweetened Beverage Tax A bottled iced tea sweetened only with honey is still taxable.

Syrups and concentrates for fountain machines and self-serve dispensers are also covered, but the tax is calculated on the total volume of finished drink the concentrate can produce when mixed to the manufacturer’s spec, not on the volume of syrup in the container. A five-gallon bag of syrup that yields 30 gallons of soda gets taxed on the 30 gallons. This stops restaurants, theaters, and convenience stores from sidestepping the tax by buying concentrated forms.

Common Exemptions

Every jurisdiction carves out similar categories, though the details differ:

  • Infant formula is exempt everywhere.
  • Beverages formulated for medical purposes are exempt.
  • Dairy milk and plant-based milk alternatives like soy or almond milk are generally exempt, sometimes subject to a minimum percentage of milk by volume.
  • 100% fruit and vegetable juices with no added sweeteners are exempt; adding sugar to a juice blend removes the exemption.
  • Alcoholic beverages already have their own excise taxes and fall outside these ordinances.

Philadelphia is the outlier on diet drinks. Because its ordinance defines a sugar-sweetened beverage to include any product with an artificial sugar substitute, zero-calorie sodas sweetened with aspartame, sucralose, or stevia are taxed at the same 1.5¢-per-ounce rate as their full-sugar versions.4American Legal Publishing. Philadelphia Code 19-4100 – Sugar-Sweetened Beverage Tax Every other U.S. jurisdiction exempts diet drinks.

How the Tax Is Calculated and Who Pays It

All U.S. sugar taxes use a cents-per-ounce model for ready-to-drink products. A 12-ounce can of soda in Philadelphia carries 18 cents in tax (12 × $0.015). The same can in Boulder carries 24 cents. A two-liter bottle, about 67.6 ounces, runs roughly $1.01 in Philadelphia and $1.35 in Boulder.

The tax obligation sits with distributors, not retailers or consumers. When a beverage distributor delivers taxable products to a store, restaurant, or vending operator inside the city, the distributor owes the tax to the city’s revenue department. Philadelphia requires distributors to register and publishes a list of registered ones; a retailer that buys from an unregistered distributor inherits the obligation and has to register as a dealer to file directly.8City of Philadelphia. Philadelphia Beverage Tax (PBT)

Distributors typically file monthly or quarterly, reporting the total ounces of taxable beverages they brought into the taxed area. Late or inaccurate filings carry real penalties: Philadelphia can impose $1,000 per violation and revoke a business’s Commercial Activity License.8City of Philadelphia. Philadelphia Beverage Tax (PBT)

How It Actually Reaches Shoppers

Because the tax is legally owed by the distributor, it doesn’t show up as a separate line on your grocery receipt. Distributors absorb some of the cost and pass the rest through by raising wholesale prices, and retailers raise shelf prices in turn. Studies across U.S. jurisdictions have found roughly 70 percent of the tax reflected in retail prices, with some stores absorbing more to stay competitive and others marking up beyond the tax amount.

In concrete terms, a 12-pack of soda (144 ounces) in a 1.5¢-per-ounce city carries about $2.16 in embedded tax. At 2¢ per ounce, that jumps to $2.88. Those are meaningful additions on a product that might otherwise retail for $5 to $8.

Cross-border shopping is a predictable side effect. Research on Berkeley’s tax found that about half of the reduction in sweetened beverage purchases inside the city was offset by increased purchases just outside city limits. When the taxed area is a single city ringed by untaxed suburbs, drivers can easily shift where they buy, which blunts both revenue and consumption effects.

Why the Map Is So Small

The main reason sugar taxes haven’t spread is state preemption. At least four states have passed laws specifically barring local governments from imposing new sweetened beverage taxes: Arizona, California, Michigan, and Washington. Others have broader statutes blocking local taxes on groceries or food, which produce the same result.

California’s Keep Groceries Affordable Act of 2018 (AB 1838) prohibits any California city or county from imposing a new grocery tax, sweetened beverages included, until January 1, 2031. The law grandfathered existing taxes, which is why Berkeley, Oakland, Albany, and San Francisco still collect theirs, and Santa Cruz’s 2024 measure was structured to fit within the law’s terms. A California appeals court later struck down the penalty provision that would have stripped sales tax revenue from cities defying the ban, but the underlying prohibition on new local taxes remains in force.

In states without formal preemption, beverage industry campaigns against proposed taxes have been well funded. Cook County, Illinois enacted a beverage tax in 2017 and repealed it within months. The combination of legal barriers in preemption states and political resistance elsewhere is why the list of active jurisdictions has grown slowly.

What the Money Funds and What the Evidence Shows

Philadelphia’s tax generates roughly $73.8 million per year on average, the largest sugar tax revenue in the country.9Philadelphia City Controller. March 2024 – Municipal Money Matters The city directs it to free pre-kindergarten, community schools, and capital improvements at parks, libraries, and recreation centers. Berkeley collects about $1.15 million per year, which goes to its general fund.

On consumption, a meta-analysis of sugar tax evaluations across multiple countries found that a tax equivalent to a 10 percent price increase was associated with an average 10 percent decline in sweetened beverage purchases. Berkeley reported consumption drops of roughly 10 to 20 percent inside the city, though cross-border shopping trimmed the net reduction. The honest read is that these taxes reduce sweetened beverage buying within their borders, but the effect is diluted when the taxed area is small and surrounded by untaxed territory.

How Other Countries Structure It

More than 50 countries have adopted some version of a sweetened beverage tax, and the designs differ.

The United Kingdom’s Soft Drinks Industry Levy, introduced in 2018, uses a two-tier structure tied to sugar content rather than a flat per-ounce rate. As of April 2025, drinks with more than 5 grams but less than 8 grams of sugar per 100 milliliters are taxed at £1.94 per 10 liters, and drinks with 8 grams or more per 100 milliliters face £2.59 per 10 liters.10GOV.UK. Soft Drinks Industry Levy Statistics Background and References The tiered thresholds gave manufacturers a financial reason to reformulate below the cutoffs, and many did.

Mexico implemented a national tax of about 1 peso per liter on sweetened beverages in 2014. The rate has been adjusted for inflation and sits at roughly 1.64 pesos per liter. Because the tax is national, it avoids the cross-border leakage that weakens U.S. city-level taxes, and studies have documented sustained reductions in purchases in the years since.