Court rules California charter cities can implement sugary drink tax without penalty

SANTA CRUZ — In a ruling at the end of March, the California Third District Court of Appeals found that charter cities such as Santa Cruz cannot be financially penalized by the state for lawfully implementing a sugary drink tax, or soda tax, on residents.

“The appellate court ruling means that cities across California can once again enact public health policies like sugary drink taxes without fear of financial ruin,” said Santa Cruz City Councilmember Martine Watkins, who was a plaintiff in the case. “We’re now one step closer to more California residents being able to reap the benefits of these types of policies.”

In early June 2018, a 1.5-cent-per-ounce sugary drink tax ballot initiative, championed by Watkins and others, had been approved by the Santa Cruz City Council to go to a vote by city residents that November, but the initiative was brought to an abrupt halt when then-Gov. Jerry Brown signed the Keep Groceries Affordable Act into law June 2018, months before the election.

The law prevents taxes on grocery items and included a penalty provision for any charter city that attempted to implement a sugary drink tax, or other grocery-related tax that would take away the city’s sales tax revenue, and was prompted by pressure on California lawmakers from the beverage industry, according to court documents.

“Naturally, we were disappointed,” said Watkins. “We had put a lot of time and energy into crafting something that we felt was really good and reflective of our values.”

Soon after the act’s passage, then-Santa Cruz City Manager Martin Bernal suggested the measure be taken off of the 2018 ballot in fear of the penalty and it was ultimately removed.

In 2020, a lawsuit was filed by Jarvis, Fay & Gibson LLP on behalf of Watkins and Fresno-based nonprofit Cultiva La Salud, which advocates for health equity in the San Joaquin Valley. ChangeLab Solutions and the American Heart Association also supported the legal action.

“We have clear evidence that sugary drink taxes are an effective strategy for protecting the health of children and families and countering the beverage industry’s unjust marketing and sales practices,” said Genoveva Islas, founder and executive director of Cultiva La Salud. “This ruling is a victory for all Californians and clears a path for community health advocates and local governments to confront health inequities driven by sugary drink consumption.”

The appellate court ruling did state that the penalty provision in the law was unconstitutional, but the ruling does not affect the prohibition of local sugary drink taxes. However, charter cities can now rethink putting sugary drink tax initiatives to a vote without fear of devastating financial penalties.