The arcane rules for taxing beverages point to a broader taxation challenge: Unless state legislatures and city officials target broad categories, all gasoline sales, for example, their efforts to tax individual items often get hung up over how to define what’s taxed, as well as how to weigh concerns from competing constituencies. And the politics of imposing broad tax hikes is harder than taxing a narrow category of goods, such as products that are viewed as bad for your health.
“What this really speaks to is the complication of defining sales tax bases,” said Meg Wiehe, deputy director of the liberal Institute on Taxation and Economic Policy. “Particularly when most states don’t tax food consumed at home, or they tax it at a lower rate. It creates all sorts of crazy rules. You have to draw the line somewhere.” Read more