The rise of bottled water (which is now subject to sales tax)

As part of the 2017–19 operating budget process, the Legislature enacted EHB 2163 to raise revenues by making several tax changes. That includes applying the sales tax to bottled water, which is estimated to increase revenues by $54.6 million in 2017–19. The sales tax on bottled water went into effect on August 1

So I thought this Serious Eats article from last month on the history and possible future of bottled water was interesting: “Americans now drink, by volume, more bottled water than any other packaged beverage.” It's clear why state legislators wanted to capture this growing source of potential revenues (even after a similar attempt was rebuffed by voters in 2010). The growth of bottled water comes at the expense of pop—bad news for those counting on pop tax revenues in Seattle, as Opportunity Washington noted earlier this month. 

The Serious Eats article talks about the rise of bottled water over the years, how the big pop companies eventually got into the game, and where the market is headed:

But then something curious happened. The water business turned out not to be quite the cash cow that market watchers had anticipated. Unlike with sodas and sports drinks, the beverage companies learned, very little differentiates one bottle of filtered water from another. . . .

In October 2013, the New York Times reported that Hugh F. Johnston, PepsiCo's chief financial officer, had told industry analysts that the company was no longer investing in the regular bottled-water business, saying, "We don't think it creates value over time."

Instead, recent action has all been in the so-called "value-added" or "enhanced" water segment, which can be further divided into two main subcategories: "flavored water" and "functional water."

The article includes an appearance by Talking Rain Beverage Company of Washington, which has done well recently with a sparkling water/fruit juice blend.

Also, it asks whether these new products “are really bottled water or a modified form of soft drink. . . . The new category certainly blurs the boundaries.”

Whatever they are, they’re subject to sales tax in Washington. Sales tax had already applied to soft drinks—“nonalcoholic beverages that contain natural or artificial sweeteners.” (Not including, for example, drinks that contain milk or that are more than half vegetable or fruit juice.) Now the sales tax also applies to bottled water, which is defined as calorie free and not containing sweeteners or additives. But bottled water may contain, for example, carbonation, vitamins, minerals, electrolytes, and flavors, extracts, or essences derived from spices or fruits. 

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