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Washington state says goodbye to bottle and candy taxes

Water to Go co-owner David Payne shows refillable water jugs. Between June 1 and Thursday, the state charged a tax on candy, gum and bottled water, including the first fill with one of Payne’s jugs. The tax was lifted after voters approved Initiative 1107. - Neal McNamara, The Mirror
Water to Go co-owner David Payne shows refillable water jugs. Between June 1 and Thursday, the state charged a tax on candy, gum and bottled water, including the first fill with one of Payne’s jugs. The tax was lifted after voters approved Initiative 1107.
— image credit: Neal McNamara, The Mirror

Like water for chocolate, Washington residents were boiling mad enough over taxes on bottled water, gum and candy to repeal them on Election Day. The taxes were lifted Thursday after only a few months in existence.

The taxes on gum, candy, bottled water and soda went into effect June 1. Consumers paid a 9.5 percent tax in King County, while soda bottlers paid an excise tax of 2 cents for every 12 ounces of the bubbly beverage they produced.

Statewide, only King and San Juan county voters said “no” to Initiative 1107, which sought to repeal the tax. The initiative passed with more than 60 percent of state voters saying “yes” to 1107.

While the candy and gum tax would have been permanent, the taxes on bottled water and soda bottlers would have lasted only three years.

David Payne was glad to see the tax go. Payne is a co-owner of Water to Go, a bottled water retailer on South 314th Street (think office water coolers, gallon jugs and sports bottles). He came to work Thursday morning and reprogrammed his cash register to no longer charge the tax.

“The water is already discounted,” he said. “But today, every little penny counts.”

Payne’s store offers an example of the tax’s effects because almost everything he sells revolves around bottled water. Even durable sport water bottles, like those made by Nalgene, come filled with water and were thus subject to tax. He also sells a variety of candy at the cash register.

Payne said a lot of customers did not understand the thinking behind the bottled water tax: Why tax something that’s necessary and good for you? And why tax people who buy a refillable water bottle?

However, refills were not taxed. Water to Go sells large 5 gallon refillable jugs for $14.75, but consumers would only pay a tax when they bought and filled the bottle. Water to Go also sells gallon jugs for 99 cents, which, with the tax, would end up costing about $1.08. Payne did not think the tax hurt his business too much, but said lower prices for consumers always help.

The state Economic and Revenue Forecast Council projected in November that the repeal of the taxes would mean $218 million less revenue for the 2011-2013 state budget. The taxes did not go into special funds, but simply to the general fund. The projected loss for the 2009-2011 budget biennium, which ends on June 31, 2011, is around $54 million, according to council forecasts. The state is projecting a $2.6 billion deficit in this biennium.

The repeal of the taxes was hard fought and costly. The American Beverage Association spilled upward of $13 million into “yes on 1107,” and the entire campaign cost over $15 million, according to state campaign finance records. Meanwhile, proponents of the tax raised only $425,000 — one of the biggest donors was the Community Health Network of Washington at $60,000 — and spent only $341,000, according to state records.

The “yes” campaign was memorable for the yard signs that appeared asking voters to end the state tax on “food.” Food bought at the grocery store — with the exception of candy, gum and bottled water prior to Dec. 2 — is not subject to state tax.

The tax is one of the shortest lived in recent memory. State Department of Revenue spokesman Mike Gowrylow projected that the tax probably collected around $40 million during its life. There’s no way to know for certain because retailers don’t report that information to the state.

Interestingly, if a retailer never collected the tax, said Gowrylow, there’s no way for the state to recoup the losses. Initiative 1107 did not have a “savings clause” that would have allowed the state to collect all taxes for the period it was in effect.

“When people come to me, they’re trying to save money,” Payne said. “When (the state) adds a tax, especially to water, which is something people feel is healthy, (customers) don’t understand it.”

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