Santa Cruz’s soda tax to be decided by court following lawsuit

A judge will decide whether the city of Santa Cruz’s tax on sugar-sweetened beverages violates state law after the American Beverage Association challenged the voter-approved levy in a lawsuit filed Wednesday. 

The tax, which charges 2 cents per fluid ounce on the distribution cost of putting most sugar-sweetened beverages on store shelves and in restaurants, won with a narrow majority in the November general election (Measure Z) and went into effect on May 1. The tax was the first of its kind to pass in the U.S. since 2018.

During its nearly $2 million campaign to oppose Measure Z, the American Beverage Association — the legislative lobby group for the likes of the Coca-Cola Company, PepsiCo and Dr Pepper — used the threat of litigation’s “astronomical” costs as leverage to deter support for the tax.

The lawsuit is now a reality after the ABA filed the lawsuit in Sacramento, alongside the California Grocers Association, California Hispanic Chambers of Commerce, the California Alliance of Family-Owned Businesses, the California Chamber of Commerce and the California Fuels and Convenience Alliance. The California-based law firm Latham & Watkins LLP is representing the plaintiffs. 

As of late afternoon Thursday, the complaint was not yet published on the court’s website, and city attorney Tony Condotti said the city had not yet received the complaint and thus did not comment. Lookout obtained a copy from Steven Maviglio, the Sacramento-based consultant who was the spokesperson for the Measure Z opposition campaign last fall. 

The lawsuit largely echoes the language of that campaign: Santa Cruz violated the Keep Groceries Affordable Act. Passed by the California Legislature in 2018, the act prohibits new local taxes on grocery store items. Following a lawsuit that included former Santa Cruz city councilmember Martine Watkins, a judge ruled in 2023 that the state could not penalize a charter city for passing local taxes as a means to raise revenue. That ruling did not overturn the Keep Groceries Affordable Act, but took away its teeth, emboldening Santa Cruz to pursue a soda tax. 

However, the lawsuit uses the Measure Z campaign’s own messaging to argue that its intent violates the spirit of the 2018 act. 

“The city council made clear that the tax’s primary purpose was not to raise revenue for the city, but to discourage the consumption of affected beverages,” the lawsuit reads. It goes on to say that the city forecast that the tax would make soda and other sugar-sweetened beverages less affordable and discourage their purchase and consumption. “As a result, the city forecasted that the revenue generated by Measure Z would decrease over time if the city’s tax was successful.”  

In a media release announcing the lawsuit, Marissa Arslan, owner of downtown Santa Cruz’s Arslans Turkish Street Food, was quoted criticizing the fiscal impact of the tax on her business. 

“I applaud the lawsuit to challenge this illegal tax — it puts my restaurant at risk and threatens the livelihoods of small business owners like me who are doing everything we can to serve our community,” Arslan said in the statement.

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FOR THE RECORD: This story has been updated to correct Steven Maviglio’s job title and role in the opposition campaign to Measure Z.

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