4A’s Washington efforts extend beyond our nation’s capital to address advertising issues that emerge across the 50 US state governments. These issues often concern attempts by governors, legislators, attorneys general and other state/municipal authorities to restrict advertising activities or impose taxes on advertising services.
2013 has seen several states introduce tax reform proposals that include advertising tax provisions. These states seek tax revenues from the sale of advertising time and space (media buying) and/or the delivery of ad agency services and work products. Both revenue streams are pursued through a business-to-business (B2B) services tax expansion.
State tax reform proposals are driven largely by the economic realities of a shrinking tax base, the budget requirements of state constitutions and invariably, the political ambitions of governors and legislators. They attempt to achieve revenue goals by expanding the tax base to previously exempt B2B service categories such as advertising and consulting; and, creating or raising sales tax rates to off-set proposed reductions in other corporate or individual income tax rates.
However, such tax initiatives fail to consider that advertising and its many ancillary business activities stimulate a significant amount of state employment and sales activity –and thus tax revenues. Taxation of advertising in fact has the adverse effect of reducing ad-induced sales revenues and creating losses in ad-related jobs by driving advertising spending to states that are not as tax-oriented or which maintain an advertising tax exemption.
Most telling is the historic lack of success of such efforts. Since 1987, some 40 states have considered –but ultimately rejected—a tax on advertising. Florida is the only state that enacted an ad sales tax –though the measure was later reversed because it was too costly to administer and had an adverse economic impact. Within the first six months of the Florida ad tax, the top six media markets in the state were down between 12-20% and over 273,000 hotel room nights were cancelled. Then-Governor Bob Martinez subsequently repealed the tax and it has not been re-introduced since.
Current 4A’s Advocacy
4A’s Washington has successfully defeated each of the most recent state ad tax initiatives by informing and mobilizing local members through our 4A’s regional boards and councils, coordinating with local industry coalitions, and leveraging authoritative economic data to underscores the negative impacts of advertising taxation.
• 4A’s joined the Minnesota Communications Coalition and supported local 4A’s members Carmichael Lynch, Compass Point Media and others to fight back a tax proposal by Governor Mark Dayton (D-MN). Carmichael Lynch CEO Doug Spong, together with other local industry leaders, provided compelling testimony to the state House of Representatives’ Taxes Committee on the negative impacts of the proposal. Subsequently, Governor Dayton withdrew the B2B services tax provision of his plan.
• 4A’s helped form the Ohio Ad Tax Coalition, a partnership of local media and commerce businesses in response to advertising tax expansion proposed by Governor John Kasich (R-OH) as part of his budget reform package. 4A’s members Fahlgren Mortine, Innis Maggiore, Marcus Thomas and others became active in voicing opposition to the plan. This included testimony in public hearings before the Ohio House Finance Committee. After considering this feedback, the sales tax expansion was stripped from the draft bill before it was even taken up by the state legislature. “We have identified enough unintended consequences… And need to develop an alternate means of financing income tax reduction,” stated House Finance Chair Ron Amstutz following the hearings.
• Louisiana Governor Bobby Jindal (R-LA) proposed an aggressive B2B services tax rate in his 2013 budget proposal but met with swift opposition from local advertising, media and publishing leaders including the 4A’s and the Louisiana broadcasters. Governor Jindal retreated on the proposal the very day that the state legislature convened for its 2013 session. “I hear you. I’m going to park my plan,” he announced.
Despite these successful defeats, 4A’s remains vigilant on behalf of members and will be prepared to address any additional advertising tax proposals as these emerge at the state level.
Read more about 4A’s state advocacy:
• “Minnesota Governor Backs Down as Coalition Rallies Against Proposed Ad Taxes” (Advertising Age, March 11, 2013
• “Revenue-Hungry States Set Sights on Taxing Ads” (Advertising Age, February 25, 2013)
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