Cigarettes, liquor and bottled water are all taxable ‘sins’ in the Windy City.

The backlash against bottled water continues. While some U.S. cities have banned bottled water at city functions and slashed it from city budgets, one of the largest cities in the country has decided to tax the bottled water sold in its environs.

As of Jan. 1, Chicago now imposes a five-cent tax on each bottle of water sold within the city limits. It is the first major U.S. city to do so. The tax was approved in November as part of Mayor Richard M. Daley’s 2008 city budget.

Also in November, the Cook County (Ill.) board approved a resolution banning county-funded purchases of bottled water. One exception is for public health emergencies. The county (which includes the city of Chicago) spends more than $400,000 each year on bottled water.

Chicago Alderman George Cardenas first proposed the bottled water tax last August, although he was pitching a 25-cent tax to help close the city’s $217 million budget gap. The decline in the usage of city water had contributed to about a $40 million revenue shortfall in Chicago’s water and sewage funds. Cardenas also noted that the tax would help curb the influx of plastic bottles ending up in the city’s landfills. (Only about 23 percent of PET (polyethylene terephthalate) plastic bottles are recycled, says the Container Recyling Institute.)

The bottled water “sin” tax (or “eco-sin” tax) - normally associated with cigarettes and liquor - is predicted by city officials to raise an extra $10.5 million each year.

“Critics of the tax warn it could create a black market for water and spur consumers to shop in neighboring towns where a case of water will cost significantly less,” reports The Chicago Tribune. Single bottles of water sold at convenience stores or in vending machines may only increase $1.30, while the average cost of a 24-pack will go from $3.99 to $5.19, a 30 percent increase.

The American Beverage Association, the International Bottled Water Association, the Illinois Retail Merchants Association and the Illinois Food Retailers Association have banded together to fight the tax. The coalition tried to argue its case before the city council during debate on the issue, but failed.

The group filed a lawsuit Jan. 4 in Cook County Circuit Court, claiming that the tax “intentionally circumvents the state law that forbids home rule municipalities from taxing food that’s to be consumed off premises,” reports the Chicago Sun-Times. And while Chicago is legally allowed to tax carbonated soft drinks, the suit notes that water is not a soft drink and should be treated as other bottled beverages not subject to the tax, such as milk, tea and sports drinks.

Chicago Law Department spokes-woman Jenny Hoyle defended the tax, noting that state law “preempts percentage-based taxes on foods, not per-unit taxes such as the per-bottle tax,” reports the Sun-Times. And unlike milk, tea and sports drinks, water (through the tap) is safe and readily available in Chicago.

Other areas in North America have discussed a tax on bottled water. Officials in north central Florida have considered such proposals to help prevent a looming water crisis in the area, as well as a tax on excessive household water use, notes The Gainesville Sun.

In Toronto, a proposal to study adding an extra five cents to the cost of bottled water in Ontario and 10 cents to the cost of water bottled outside the province - motivated by Chicago’s bottled water tax - was ultimately defeated, but resulted in a call to adopt a bottle deposit system to help reduce the volume of water bottles recycled through the province’s blue-box system, says The Globe and Mail.

And Michigan State Sen. Mark Schauer proposed a 20-cents-per-gallon excise tax on bottled water last summer, reports the Muskegon Chronicle. “Water is one of the few state-owned resources that individuals, farmers and corporations can pump out of the ground for free,” the paper notes. “The state collects millions of dollars annually from companies that pump oil and natural gas out of the ground or harvest trees from state land.”

What About A Bottle Deposit?

The International Bottled Water Association says that it successfully defeated bottled water tax bills in 10 states during 2005. The group also opposes mandated bottle deposits on bottled water containers, citing that these policies “increase bottlers’ costs and single out the beverage industry for litter abatement and recycling.”

Yet advocates of bottle deposits say this incentive has a big impact on the environment - the 11 states that have such a law typically have beverage container recycling rates of 70 percent to 80 percent, much higher than the national rate of 33 percent, notes the RedEye, a Chicago-based newspaper.

Under these laws, consumers are charged five cents or 10 cents for each bottled beverage at the store; the deposit is returned when the empty bottles are brought in for recycling.

Illinois has tried several times to enact such a law, the RedEye notes, but those efforts were defeated by opposition from retailers, distributors and some recyclers who don’t think it is the best recycling option.

Most existing bills were created in the 1970s and 1980s to stem soda can litter and only require deposits for soda containers, explains the RedEye. But as bottled water has gained in popularity with consumers, California, Maine and Oregon rewrote their laws to add bottled water. Hawaii included bottled water when it signed a new bottle bill in 2002.

Connecticut, Delaware, Iowa, Massachusetts, Michigan, New York and Vermont do not cover bottled water in their deposit laws.

Opportunity Knocks

While whole-house or point-of-use water filtration systems can’t compare to the on-the-go convenience of that refrigerated bottle of water at the grocery store or gas station, they may be the answer to your customers’ water woes at home.

If you notice cases of bottled water in a customer’s pantry or garage, or a large bottled water dispenser unit in the home, asking about the home’s water quality and offering a free water test can jump-start the water filtration/treatment conversation.

Is the area known for bad-tasting or unsafe water? Explain the different filtration systems available - what substances they filter, how they filter, what is best for the homeowner’s unique situation. Also explain what such systems can do beyond making water taste good, such as reduced wear-and-tear on appliances (dishwashers, water heaters, boilers, washing machines).

Does your customer just like the convenience of bottled water? Explain the accumulated cost of buying bottled water versus the cost of refilling water bottles from the customer’s own tap with clean, filtered water. And then offer refillable water bottles (plastic, stainless steel or aluminum with a leach-resistant liner) for the whole family - with your logo, phone number and/or Web site displayed, of course.

Bottled Water Notes

  • Polyethylene terphthalate is the plastic most commonly used for single-serving disposable water and soda bottles. It is the most recycled plastic, usually transformed into fiber for carpet. - RedEye
  • Bottled water is covered under the food stamp program and included as a food product with a sales and use tax exemption for food. - International Bottled Water Association
  • A chief criticism of bottle deposit bills is that they cover only about 20 percent of a household’s recyclable materials. They ignore other recyclables such as milk jugs and paper. - Chicago Tribune
  • Retail sales of bottled water grew 9 percent in 2007, compared with 16 percent in 2006. This excludes sales at vending machines and Wal-Mart. - Beverage Digest
  • Last June, the U.S. Conference of Mayors approved a resolution stressing the importance of municipal water and called for scrutiny of the affect of bottled water on city waste. - USA Today
  • Some local communities have objected to the sale of their water, arguing that the water underground or flowing from natural springs is publicly owned and should not be exploited for profit. - The Daily Green
  • Some bottled water manufacterers - such as Coca-Cola, PepsiCo and Nestle Waters -  are reducing the materials required for their bottles, known as “lightweighting.” And last October, Coca-Cola pledged $60 million to build recycling plants in order to make new bottles out of recycled ones. - Environmental Leader
  • Each person in the United States consumed 27.6 gallons of bottled water in 2006, up 8.4 percent from 2005. Of the 8.2 billion gallons of bottled water consumed in the United States in 2006, 270 million gallons were consumed in Illinois, making it the seventh largest bottled water consumer in the nation. - Beverage Marketing
  • The bottled water industry predicts a 50 percent drop in Chicago sales as a result of the city’s five-cent-per-bottle tax. - Chicago Tribune