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Trouble Brewing in the Buckeye State

February 15, 2013

In the aftermath of the Fiscal Cliff and the looming sequester, most eyes have focused on budgetary matters in Washington.

But perhaps the most imminent threat to the advertising community can be found 400 miles west in Columbus, Ohio.  Ohio’s Republican Governor, John Kasich, has proposed to lower income tax levels in the state by as much as 20 percent for individuals and as much as 50 percent for small business owners. Governor Kasich’s plan would also lower the overall state sales tax from 5.5 percent to 5 percent.  To compensate for these lost revenues Kasich would vastly expand the types of services on which sales taxes would be imposed. Most state sales taxes, including Ohio presently, exempt business to business sales, including the purchase of advertising. Now, in Kasich’s new tax proposal, only services deemed “essential,” such as health care, would be exempted from the proposed expansion of the sales tax.

Governor Kasich is no stranger to ad taxes. As Chairman of the U.S. House of Representatives Budget Committee in 1995, then Congressman Kasich proposed to curtail the business tax deduction for advertising expenses.

Advertising is vital to the economic well-being of Ohio. According to IHS Global Insight, a highly regarded economic think tank and forecasting organization that utilizes the U.S. economic model originally created by  Nobel Laureate in Economics, Dr. Lawrence R. Klein,  advertising generates roughly $188 billion of economic output (or about 20% of Ohio’s economic output) annually. IHS Global Insight estimates that more than 758,000 jobs in Ohio are supported by advertising.

Advertisers should be monitoring this situation very closely.  Multi-millions of dollars annually could be on the line for both consumers and businesses.

And the challenge does not end with Ohio. Governor Mark Dayton of Minnesota, a Democrat, has proposed a similar idea. If these proposals are implemented in Ohio and Minnesota, other states, many of which are cash-strapped and have constitutional requirements to balance their budgets, might also look to taxing advertising as a source of revenue.  For states attempting to be more reliant on sales taxes, it seems extraordinarily short sighted and paradoxical that they would, at the very same time, consider placing additional burdens on advertising, the major engine of sales in Ohio and the rest of the United States.

Continued vigilance toward the actions of Congress and state governments will be absolutely necessary for advertisers in 2013.

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