Government Affairs
LEGISLATIVE ALERT!!!
STOP THE TAXATION OF ADVERTISING IN TEXAS!
The Austin Ad Fed encourages everyone who considers themselves a part of Texas' advertising industry to contact their House members and voice their opposition to a taxation on advertising (click here to find your House Rep). Below is some background, some useful talking points, and additional resources.
BACKGROUND
On May 5, 2003 the Texas Senate unanimously passed Lt. Governor David Dewhurst's (R) school refinance plan (SJR 1 and HB 5). The proposal would lower property tax rates, raise the state sales tax and extend the sales tax to all service except medical and dental services. Advertising time and space and agency services would be taxed if the Dewhurst plan becomes law.
On the House side, Speaker Tom Craddick (R) would prefer to deal with the school refinance issue in special legislative session and has indicated the Dewhurst plan is unlikely to pass in the House. Governor Rick Perry (R) also favors a special session.
While these signs are positive, the situation is still very volatile. The advertising tax will remain a serious threat until the legislature adjourns in June. It is very important that members of the advertising industry continue to contact lawmakers and register opposition to the harmful tax on advertising.
TALKING POINTS
An advertising tax is not a new idea, just a bad one. Arizona, Iowa and Florida each passed advertising taxes. Each state later repealed the tax because it hurt their local economy and was impossible to administer. Since 1987, when the Florida services tax was repealed, advertising taxes have been considered in 40 states and rejected in each case. As corporate citizens, the advertising industry contributes to the state's tax base through business operations, employees and shareholders. We expect to pay our fair share to support government. We only ask to be taxed in ways that are economically sound and easy to administer.
An advertising tax is economically unsound. Advertising taxes slow economic growth. Studies by the Wharton Econometrics Forecasting Associates show that a tax on advertising reduces local employment and personal income by substantial amounts. When the cost of advertising goes up, there is less advertising, which leads to less consumer demand. Lower demand means reduced revenue and fewer jobs. This slows the economy in general, reducing its usefulness to the government as a source of tax revenue. Furthermore, studies show that advertising fosters competition and helps lower the price of products and services for consumers. Less advertising means less competition.
An advertising tax would decimate Texas advertising agencies. Every Texas advertising agency with national advertising clients would run the risk of losing every one of them. Why? Well, if you are a large, national advertiser like Dell, American Airlines, BMW, Subaru, Home Depot, Wal-Mart, etc. why would you want to pay a Texas advertising agency 7 to 10% more in fees and commissions than you would pay any New York or Chicago agency? These national accounts would abandon Texas agencies and take their business to any of the other 49 states that don't tax advertising. They'd also advertise less in Texas, resulting in lower consumer demand, lower consumer spending, and lower sales tax revenue overall.
An advertising tax is double taxation. A tax on advertising would create a new layer of hidden taxes because of the problems of pyramiding and multiple taxation. Pyramiding occurs when the sales tax is imposed on business services at the intermediate level, rather than being imposed only on final purchase of the product by consumers. Advertising is not an end product, such as a bar of soap. Rather, advertising is a communications process that helps produce the final sale of the bar of soap, which is already subject to the state sales tax. Since a portion of any tax on the intermediate advertising process is likely to be passed along to consumers, there would be at least double taxation for most products or services purchased in the state.
An advertising tax is too complex and expensive to administer. An advertising tax would create a huge collection and administration burden for both businesses and state government. Advertising is a very complex field, involving millions of ads placed with television, radio, magazines, and newspapers. State government and businesses would both need an army of accountants and lawyers to administer the rules.
An advertising tax is an anti-business signal. A tax on advertising would send a very strong anti-business signal to firms that are considering locating their operations in Texas. Advertising dollars that are currently spent in the state of Texas would be shifted to media outlets outside the state.
An advertising tax would also hurt small businesses in the state. Many engage in cooperative advertising, where national manufacturers and local retailers share advertising costs. For many businesses, from drug stores to supermarkets and franchise restaurants to automobile dealers, cooperative advertising is a cornerstone of their marketing efforts. A state sales tax on advertising could seriously threaten these cooperative agreements. National firms, in an attempt to use their limited cooperative advertising budgets in the most effective manner, would likely shift these dollars to states that do not diminish their selling impact through advertising taxes.
Bottom line, the sales tax on advertising services and media is irresponsible because it will lead to a reduction in the economy so great that sales tax collections will actually decrease. That's what happened in Florida. That's why they had to rescind it after six months.
ADDITIONAL RESOURCES
American Advertising Federation:
Position Statement on Taxation of Advertising
http://www.aaf.org/government/position_state.html
Texas Legislature Online
http://www.capitol.state.tx.us
Texas State Senate
http://www.senate.state.tx.us
Texas State House of Representatives
http://www.house.state.tx.us/welcome.php
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