The Tax Fight Is Not Over

April 12, 2013

In recent weeks, advertisers have seen some important positive developments in regard to state ad tax proposals. A number of major state tax reform proposals that imposed major burdens on advertisers have been revamped or scrapped. In early March, Minnesota Governor Mark Dayton announced that he was backing off from his plan to expand the state sales tax to most business services. A sales tax on advertising had been included in his original proposal.

Earlier this week, Louisiana Governor Bobby Jindal (who had proposed eliminating the state income tax, raising the sales tax, and expanding the sales tax to a number of services including ad agency services) said he would defer tax reform initiatives to the state legislature rather than pushing his own proposal. Jindal’s proposals had been receiving significant political flack and criticism before he backed away. And on Tuesday, the Ohio House of Representatives stripped Governor John Kasich’s plan to expand the state’s sales tax to cover almost all business services, including advertising, out of its budget bill.

The threat, however, is far from over. Governor Jindal has told the state legislature that he expects a tax proposal to phase out the state income tax. Should the legislature accept this challenge, inevitably they will have to look elsewhere to fill the revenue gap. Advertisers, therefore, could still find themselves in the line of fire. Also, in Ohio, the Senate has not yet come forward with a plan.

And then there is the Congress. The House Ways and Means Committee (the House tax writing committee) has divided its membership into eleven working groups, which have been tasked with reviewing current tax laws. On Monday, Senate Finance Committee Chairman Max Baucus (D-MT) and House Ways and Means Committee Chairman Dave Camp (R-MI) co-authored an article in the Wall Street Journal saying that tax reform was “alive and doable” and said they would look to close “tax loopholes.”

The real crunch will come when the Congress tries to determine what qualifies as a “loophole.” We have heard from various sources on the Hill that “everyone will have to be ready to give something.” In the past, too often we have seen advertising looked to as a potential source for new revenue. These tax proposals have been targeted at both specific so-called “controversial categories,” as well as on an across-the-board basis.

To respond, we have been proactively meeting broadly with Hill leadership. In doing so, we are relying on a major study carried out by the noted economic research group IHS Global Insight. That study demonstrates that advertising is responsible for $4.1 trillion in economic output and directly supports more than 15 million jobs in the United States annually.

Advertising, throughout the existence of the U.S. income tax code, always has been treated as an ordinary and necessary business expense. It has never been treated as an exception to or a special provision of the tax code. When business is still struggling to bounce back from the long economic downturn, now is certainly not the time to place additional tax burdens on advertising, one of the major economic engines of our economy!

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