Gov. Jennifer Granholm’s proposed tax on bottled water attempts to circumvent the 35-year old Michigan prohibition on taxing the sale of food products. In 1974, the voters of Michigan approved an amendment to the state constitution that exempts food products from any sales or use tax. Bottled water is classified by the U.S. Food and Drug Administration and the state of Michigan as a packaged food product. Therefore, Gov. Granholm’s proposed tax would be unconstitutional. Although there are many taxable items and services involved in the governor’s budget proposal, taxing food products such as bottled water is not permitted under current law.
In addition, consumers will ultimately bear the burden of any tax increases via higher prices. Increased beverage prices unfortunately place a much higher spending burden on working families, the poor and the elderly — those who can least afford that burden.
The new tax as proposed could discourage some Michiganders from purchasing bottled water, which is a safe, healthy, convenient, regulated food product that helps them stay hydrated and refreshed, and which does not contain sugar, caffeine and other additives that they may be trying to moderate or avoid.
Higher bottled water prices may also cause some Michigan consumers to purchase their bottled water from neighboring states. All these lost sales would not only harm Michigan-based bottled water manufacturers and retailers, but would also harm the state itself. Lost sales often equate to lost jobs and failed companies — nothing about that would be good for Michigan’s economic portfolio.
IBWA is opposed to all taxes that unfairly target the bottled water industry’s products. Such a tax would negatively impact Michigan’s economy, consumers and bottled water companies. IBWA represents bottled water producers, distributors and suppliers throughout the United States, including several companies in Michigan. Sixty percent of our members have annual sales under $1 million, and 90 percent of our members have less than $10 million in annual sales. These are small, locally owned companies with deep roots within their communities.
In fact, companies in Michigan that manufacture, distribute and sell bottled water products employ as many as 5,000 people in the state and generate an additional 10,500 jobs in supplier and ancillary industries. These include jobs in companies supplying goods and services to bottled water manufacturers, distributors and retailers, as well as those that depend on sales to workers in the bottled water industry. These are good jobs, paying an average of $41,490 in wages and benefits.
Not only does the manufacture and sale of bottled water create good jobs in Michigan, but the industry also contributes to the state’s economy as a whole. In fact, in 2008 the bottled water industry was responsible for nearly $2.4 billion in total economic activity in Michigan. Furthermore, the bottled water industry already generates sizable tax revenues in the state, with the industry and its employees paying over $16.3 million in property, income and sales taxes.
The bottled water industry has a long history in Michigan of working with the Administration, the Legislature and others on sound and equitable laws and public policy, and we have often gone the extra mile in accepting additional industry-specific regulations as a show of good faith and desire to remain economically viable in Michigan. IBWA’s active involvement in helping to support and pass the Great Lakes Compact is proof of that.
Bottled water businesses are already strained in the current economic crisis — a tax on their products will only add further strain. Furthermore, the bottled water industry has a long history in Michigan of coming to the aid of those in distress during incidents when bad weather, floods, fires and other events have prevented municipal water systems from providing clean, safe drinking water. For bottled water to be available in emergency situations, there must also be a viable commercial marketplace that supports its production. Reducing the commercial viability of bottled water could seriously threaten its availability during emergency situations in Michigan.
Finally, the environmental impact of bottled water is very small when compared with other consumer products. According to the U.S. Environmental Protection Agency, bottled water containers make up only one-third of 1 percent (0.33 percent) of America’s waste stream. And plastic water bottles are being recycled more frequently. Last year, for instance, the recycling rate for plastic water bottles was 23.4 percent — up 16.42 percent from the year before. Studies now show plastic water bottles to be the single most recycled object in U.S. curbside recycling programs. Bottled water is only one of thousands of beverages, food products and other consumer products packaged in plastic containers. Any effort to reduce the environmental impact of packaging must consider all consumer goods and not target any one industry.
Joe Doss is president of the International Bottled Water Association.