Oklahoma House of Representatives
Mike W. Ray, Media Division Director
January 27, 2004
FOR IMMEDIATE RELEASE

Contact: State Rep. Jerry Ellis
Capitol: (405) 557-7363
Valliant: (580) 933-4930

OKLAHOMA CITY -- State Rep. Jerry Ellis hopes his latest soft-drink fee proposal retains its fizz and doesn't go flat like it did last year.

With certain exceptions, House Bill 2116 would impose on distributors, manufacturers and wholesalers a tax of $2 on each gallon of soft drink syrup or simple syrup sold in Oklahoma. Any retailer who buys bottled soft drinks, syrup or other ingredients from an unlicensed distributor, manufacturer or wholesale dealer would be liable for the $2
per gallon fee for each gallon of soft drink or syrup, the bill provides.

The legislation also would charge 21 cents per gallon of bottled soft drinks, which Ellis said equates to 1.96 cents for a 12-ounce can or bottle of soda pop.

Analysts have calculated that the proposed levy would generate an estimated $60 million annually in Oklahoma. A 2-cent per can levy in Arkansas produces about $40 million each year, and across the nation, 19 states collect special taxes on soda pop and other snacks that generate $1 billion annually, Ellis said.

The Valliant Democrat contends that taxing the ingredients or base products of soft drinks probably would be an easier and less costly way of generating revenue, rather than trying to impose a direct consumer tax.

Ellis' proposal last year, House Bill 1332, would have directed the tax receipts to the state's General Revenue Fund, which many political observers describe as a fiscal black hole. That bill was killed in the House Committee on Revenue and Taxation.

Consequently, House Bill 2116 would divide the proceeds among the Oklahoma Teachers' Retirement System (35 percent), bridges on the state highway system (35 percent), and public health, particularly the Medicaid program for low-income Oklahomans (30 percent).

By apportioning the proceeds, the proposed soft-drink fee could attract millions of dollars in matching federal funds, Ellis said.

For example, each dollar the State of Oklahoma allocates to Medicaid is matched by the federal government with approximately $2.78, according to Health Care Authority spokesman Nico Gomez. Therefore, the $18 million in state funds that Ellis' soft-drink fee would produce for public health care could capture $50 million in federal aid.

State funds devoted to bridge rehabilitation and replacement are matched by the federal government, too, according to a formula. The estimated $21 million that would be generated by the soft-drink levy would represent a 40 percent increase in spending on state bridges, Ellis observed; the state Transportation Department budget for bridge
repair and replacement in Fiscal Year 2003 was $52 million, ledgers reflect.

Every available dollar is needed because nearly one-fourth of the highway bridges in Oklahoma are substandard, Ellis said. Of the 6,728 highway bridges in Oklahoma, engineers deem 1,116 of them to be structurally deficient and 481 as functionally obsolete; 135 of the highway bridges in this state are more than 80 years old.

Similarly, the public teachers pension system is desperate for the $21 million annual cash infusion that HB 2116 would provide, Ellis pointed out. The system's assets-to-liabilities ratio is only 54 percent; its long-term, accrued actuarial liabilities exceed the actuarial value of its assets by $5.488 billion.

House Bill 2116 "is a sensible, practical alternative to raising property, sales or fuel taxes," Ellis asserted. "I don't believe a two-penny tax would have an adverse effect on soft drink sales.

Consumers already pay anywhere from 60 cents to $1 for a 12-ounce can of soda, he noted.

Industry research indicates the average American consumes 333 grams of soft drink per day; that translates into 11.65 ounces daily, or one can of soda daily, Ellis related. Nationally, consumption averages just under 53 gallons of soft drinks per year -- slightly more than a gallon each week -- for every man, woman and child in this country. In 2002, retail sales of carbonated soft drinks totaled more than $61 billion, the National Soft Drink Association reported.

Ellis' legislation provides exemptions from taxation for:
* any powder or base product used to prepare coffee or tea;
* any frozen concentrate or freeze-dried concentrate to which only water is added to produce a soft drink containing more than 10 percent natural fruit juice or natural vegetable juice;
* any soft drink containing more than 10 percent natural fruit or vegetable juices;
* any product commonly referred to as infant formula;
* any product intended by the manufacturer for use as a dietary supplement or for weight control;
* water to which no flavoring or carbonation has been added;
* any product containing milk or milk products;
* any powder or other base product that is intended by the manufacturer to be sold and used for domestically mixing soft drinks by the consumer;
* ingredients or soft drinks exported from the state by a distributor, wholesaler or manufacturer;
* ingredients or soft drinks sold by one distributor, wholesaler or manufacturer to another distributor, wholesaler or manufacturer who holds a license issued by the Oklahoma Tax Commission;
* syrups, simple syrups, powders or base products, or soft drinks sold to the U.S. government.
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