Governor's Proposed Advertising/Services Tax

To: AAF Pennsylvania Members
From:Clark Rector, Executive Vice President-Government Affairs
Re: Governor's Proposed Advertising/Services Tax

Earlier this week Governor Edward Rendell released his proposed 2010-11 budget.  One of the features of the budget is the recommendation to remove 74 categories of sales tax exemptions, including the exemption for advertising.

The budget has not yet been introduced as legislation.  As of yet, there has been very little reaction to the plan from lawmakers.  However, it is not too early to make our views known.  Please have members of your advertising club or company contact your local lawmakers and let them know a tax on advertising would do more harm than good and should be opposed.

If you know of anyone with a personal relationship with a lawmaker, it would be especially beneficial for him or her to make personal contact to express concern.

Talking points are included below.  The Pennsylvania General Assembly webpage can be found at http://www.legis.state.pa.us/.  There is a search engine that easily allows you to identify your Senator and Representative and gives contact information. 

Please do not hesitate to contact me at crector@aaf.org or 800-999-2231 if you have any comments or questions.

A tax on advertising should be opposed because:

  • National advertising dollars will leave the state.  Marketers will move to markets where they can reach the most consumers with the fewest dollars.  Florida taxed advertising for six months in 1987.  While that tax was in effect national advertising purchases increased 3%.  In Florida they decreased 12%!

  • Advertisers can reach many Pennsylvania consumers using untaxed out of state media from across the border.  During the 1987 Florida tax, Pensacola broadcasters encountered revenue losses of 45%.  Most of that money went across the border to competitors in Mobile, Alabama.

  • Local media will suffer huge losses.  Advertising is the primary source of revenue for the print media and the sole source for broadcasters.  A reduction in advertising would inevitably result in a loss of jobs and a decreased ability to provide quality content and programming.

  • An ad tax is too complex and expensive to administer.  The Florida Department of Revenue spent millions of dollars to hire over 200 new auditors in 1987.  The executive director admitted afterwards, "It was not enough."

 

A tax on advertising is bad public policy:

  • Placing a tax on advertising services and/or placement increases the cost of advertising.  Because most clients operate on a fixed advertising budget, they will compensate for the tax by decreasing their advertising purchases.  This will have a direct -- and negative -- impact on the advertising industry, economy, consumers and the state.

  • Advertising is the engine that fuels the economy.  Less advertising means fewer sales.  Fewer sales mean reduced revenue and fewer jobs.  Fewer sales also result in less sales tax revenue for the state.

  • Prices may rise.  Studies show that advertising fosters competition and helps lower the price of products and services.  Less advertising means less competition.