Bottled Water Severance Tax - A Very Bad Precedent

March 13, 2009

Alexandria, VA -- Florida Governor Charlie Crist's 2009-2010 Proposed Budget includes a severance tax for water withdrawn in Florida for bottled water use. The draft legislation calls for a $0.06 per gallon tax for water used to produce and bottle water, and is applicable to bottlers regardless of whether the source is ground water or a municipal source water. Various reports indicate that the Governor expects the proposed severance tax to raise anywhere from $60-100M per year, and the tax would be earmarked for the Alternative Water Supply Development (AWSD) program, the Total Maximum Daily Load (TMDL) program, Surface Water Improvement and Management (SWIM) program, and the Conserve Florida Clearinghouse.

“It is unfair to single out one industry that is a very small user of water in Florida to finance programs that benefit all businesses and consumer using water,” said Tom Lauria, IBWA’s Vice President of Communications.  Bottled water is a minimal user of water as compared to other ground and surface water withdrawals within the state. In 2001, the Drinking Water Research Foundation calculated bottled water’s nationwide use of water resources to be only 2/100 of one percent (0.02%).  Florida is not different from the rest of the nation in terms of withdrawals by bottled water companies. Many other agricultural, commercial and industrial entities in Florida withdraw far more ground and surface water than the bottled water industry. When determining a funding mechanism for these worthy programs, all users should be treated equally.

The tax will place Florida bottled water businesses at a competitive disadvantage over bottled water companies in other states who sell water in Florida. It will substantially increase the cost of producing bottled water in Florida. With over 60% of IBWA bottler members having annual sales of less than $1 million –  these are “mom and pop” companies with 2-10 employees and deep and strong local community roots and ties – the  proposed tax will have a dramatic impact and drive businesses to neighboring states. A severance tax on the bottled water industry in Florida could easily result in lost jobs as these companies find it difficult to compete. Or worse, it could results in failed companies, particularly during these hard economic times. If the tax forces a decline in the industry, the revenue expected to be generated from the tax will not meet the estimates.

For those companies that can sustain their business, the proposed severance tax will most likely be passed on to the consumer via higher product prices. Both the U.S. Food and Drug Administration and Florida’s Department of Agriculture classify bottled water as a packaged food product. The proposed severance tax places a much higher spending burden on working families, as well as the poor and the elderly. While studies show that consumers support taxes to fund water infrastructure improvements and investments, those consumers do NOT support increasing the costs of their beverages as means to that end.

Florida's bottled water industry is at the forefront of relief efforts during natural disasters and other catastrophic events, such as hurricanes and floods, when clean, safe water is critical. They are often the first responders to these events, acting as a backup for compromised public water systems. The bottled water industry's philanthropy is contingent on a viable commercial market – a severance tax on the bottled water industry in Florida would be ironic disservice to and poor public policy for an industry that is called upon every year to provide crucial drinking water throughout the state. “It is vividly unfair to single out this industry as the only one to be burdened with a tax on their water withdrawals, when millions of water users draw upon Florida’s water resources.  This is a bad precedent for public policy and a warning to all Florida businesses,” Lauria said

The bottled water industry is willing to support efforts to fund worthy government projects on an equitable basis, along with the rest of the business community. Severance taxes that target only bottled water are unlikely to be a substantial or stable source of revenue for government funding, and are inherently inequitable and unfair. It is a slippery slope to create this unique funding system that is unlikely to be able to solely fund these projects on a sustained basis.

IBWA support investments and improvements in the protection, treatment, distribution and consumption of a safe, healthful, adequate supply of drinking water in Florida. That support is critical to IBWA and its members, as a long-term and sustainable supply of high-quality water is the “lifeblood” of the bottled water industry. IBWA does not support funding mechanisms for projects that rely solely upon the bottled water industry.