January 8, 2003

Legislative Activity

Date: January 8, 2003

To: AAF Ad Club Presidents, Legislative Chairs, Executive Directors

From: Clark Rector Jr., senior vice president-state government affairs

Re: Potential State Tax Threats

Most state legislators will begin work this month facing severe budget difficulties. A recent article in Time magazine reports that state tax receipts fell 6% last year, the first decline in more than 50 years. According to the National Conference of State Legislatures, 33 states report lower than anticipated revenue.

In addition to this sobering revenue news, legislators are looking at the rising cost of state services, especially Medicaid and other healthcare services. Legislators must also deal with the fact that, unlike the federal government, all states (except Vermont) require a balanced budget.

All of these realities add up to the fact that many lawmakers will be looking to raise taxes to increase revenues. Further, past experience teaches us to expect some of those proposals to be to extend the sales tax to untaxed services, including advertising. In fact, the Time article lays much of the blame for state revenue shortfalls on "an ancient state-tax system that largely ignores the fastest growing part of the economy: services."

It is absolutely vital that the advertising industry be vigilant in watching the legislature for any sign that a tax on advertising is being considered. The sooner we learn of any threats the better. It is much easier to stop a bad idea before it is formally introduced as legislation than wait until it is the subject of a hearing or votes.

AAF has a computer based state legislative tracking service and a broad network of lobbying and association contacts in the state capitols. However, one of our best sources of early information is you and other members of the AAF advertising club network. I encourage you and other members of your ad club to watch the political news coming out of your state capitol and call me if you hear any news or rumors of an advertising tax.

Should the at tax threat prove to be a real one, AAF will do everything in our power to help you defeat the tax. Since the repeal of the 1987 Florida advertising and services tax our record is an unblemished one. Over half the states have considered some form of taxation on advertising. AAF advertising clubs have played a key role in the defeat of each proposed tax. Should a threat arise in your state, we'll help put that experience to work for you.

If you have any comments, questions or news to report, to not hesitate to call me at 1-800-999-2231.