State Budget Pressures Could Lead to Ad Tax Fights

November 12, 2008

Many state governments are facing severe budget pressures that are expected to intensify for some time.  Unlike Congress, state governments must pass balanced budgets each year, so they must cut spending, raise taxes or do some combination of both.  In this environment, we expect states to consider new taxes on business services, such as advertising, to raise needed revenues.

We need your help to respond to these threats.                 

A recent report from the Center on Budget and Policy Priorities describes how serious the fiscal crisis is for state governments:

• At least 39 states are facing shortfalls in their budgets for this and/or next year.  Over half the states had already cut spending, used reserves or raised revenues in order to adopt a balanced budget for the current fiscal year, which started July 1^st in most states.
• Now those budgets have fallen out of balance again.  New gaps have opened up in 27 states for the current fiscal year and the estimates of the mid-year gaps total more than $12 billion.  That total does not include deficit estimates for California and Illinois.

Since economic conditions remain unsettled, the state budget crisis is expected to continue at least into the next fiscal year.  According to Congressional Quarterly, Ray Scheppach, Executive Director of the National Governors Association, notes that even with anticipated assistance from the federal government, states are girding themselves for what may be their worst budget crisis in a quarter century: "I use one term - ugly."

Over the last twenty years, ANA has helped defeat over 120 ad tax proposals in more than 40 states.  We work with our member companies and our sister associations (the American Association of Advertising Agencies and the American Advertising Federation) through the State Advertising Coalition (SAC) to respond to these threats.  We also work closely with the broadcasters, newspaper publishers, magazine publishers and outdoor advertising groups in the states to explain why taxing advertising is a bad idea.

We are also members of The Advertising Coalition, which has developed the Global Insight Study, directed by Nobel Laureate in Economics Lawrence Klein.  That study quantifies the economic impact of advertising in every state and congressional district in the country.  This is a powerful tool for demonstrating why a tax on advertising is bad for the economy and businesses in the states.

As the states begin their legislative sessions in January, we will keep you informed of further developments in this area.

We ask that you do the following to help us rapidly respond to any ad tax threats:

• If you hear about a potential ad tax threat in any state legislature, please contact Keith Scarborough, Senior Vice President for Government Relations in ANA's Washington, DC office at kscarborough@ana.net or 202-296-1883.

• If there are others in your company who are responsible for state tax issues, please pass this along and provide us with their contact information for future communications.

We look forward to working with you during this challenging period.