California Court Strikes Penalty for Cities That Impose Soda Tax

California can’t punish cities for imposing taxes on sugary drinks after a state appeals court ruled that a penalty on a city’s lawful exercise of its constitutional powers cannot stand.

The state’s Keep Groceries Affordable Act of 2018 bars local governments from taxing certain grocery items including sodas and other sugar-sweetened drinks. Charter cities—those with home-rule authority—that violate the act are stripped of revenue from sales and use taxes.

The California Third District Court of Appeals ruled Monday that the penalty is inappropriate. The statute “improperly uses the threat of crippling penalties to chill charter cities from exercising their constitutional ...