Minnesota Ad Tax Threat Grows

February 25, 2013

With ad taxes still looming in Ohio, the threat in Minnesota is growing simultaneously. Governor Mark Dayton has put forward a broad tax proposal that would impose sales taxes on advertising and a broad range of business services.

This Wednesday, in the Minnesota House of Representatives, the Taxes Committee will hold a hearing on the bill that could implement these proposed changes, HF677. This bill, authored by Taxes Committee Chairman Ann Lenczewski, would lower the overall sales tax rate of the state from 6.8% to 5.5%, but substantially broaden the base of covered services. The Minnesota Department of Revenue released a report detailing the proposal last week. Newly taxed services include: advertising services, consulting services, publications, legal services, design services, and a number of others. Among those items still exempted are: medical services, food, and prescription drugs.

The Department of Revenue’s report states that services delivered to a buyer in another state (as is often the case with advertising services) will not be subjected to the tax. However, this proposal is still economically dangerous. According to IHS Global Insight, a highly regarded economic think tank, advertising is responsible for $109 billion in economic output in Minnesota (about 20.4% of the state’s economic output). Advertising supports 412,838 jobs in the state (about 15.1% of the jobs in Minnesota).

As in Ohio, the imposition of sales taxes on advertising, the driver of sales, will actually have the paradoxical effect of tending to diminish the revenue ultimately generated by broadening the sales tax base. ANA will be filing comments with the Taxes Committee. Advertisers, ad agencies, media, and similar groups should take immediate action to oppose these proposals before they gain unstoppable traction.

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