Falling Oil Prices Could Signal Tax Troubles for Advertisers

January 7, 2015

The American public has been enjoying some long-awaited relief from the historically high oil prices we have experienced in recent years.  With the holiday season now behind us, retailers certainly saw the benefit of these falling prices due to increased spending by consumers.  Unfortunately, the low oil prices appear to be adversely impacting a number of state budgets.

Many states rely heavily on the revenue generated through oil and gasoline consumption.  For most of these states, their revenues come through taxes on gasoline used for transportation.  For others – in particular Alaska, Texas, and Louisiana – the oil and gas industry is a significant direct economic driver in the state.  According to an article in the Washington Post last month, state officials already have had to revise revenue predictions downward and, if the price remains low for long, lawmakers could be forced to make substantial budget changes as legislatures reconvene.  Therefore, some state lawmakers could be forced to face tough decisions over raising or implementing new taxes to make up for the revenue loss.  Forty-nine states in the U.S. are constitutionally required to balance their budgets every year.

2014 was an unusual year in that there were virtually no significant ad tax proposals actively considered at the state level.  We have seen numerous times in the past, however, that when states begin to feel cash-strapped, they look for “easy” opportunities to increase tax revenue by attempting to extend state sales taxes to advertising and agency services.  

In 2013, Governors John Kasich (R-OH), Mark Dayton (D-MN), and Bobby Jindal (R-LA) each proposed new taxes on advertising and agency services as part of their budget proposals.  As a result of coordinated opposition from the marketing and media communities, each of these proposals were ultimately dropped by the governors.  Now, newly elected governor of Illinois Bruce Rauner has proposed extending the sales tax to a number of services, including advertising on billboards, radio and television as well as ad agency services.    

As state legislatures ramp up in 2015, ANA and the ad community will have to keep a very close watch on state budget proposals to assure they do no impose tax burdens on advertising and the effort to generate sales.  Our economic studies demonstrate that advertising is one of the key drivers of economic activity and job creation in every state in the U.S.  It is vitally important that these ad tax proposals be stopped before they gain traction because states look at what their neighbors around the country are doing to find new ways of producing revenue.  States should focus on finding innovative ways to save and spend as opposed to penalizing the companies that support their economies by advertising to consumers.

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