May 15, 2002

Legislative Activity

Date: May 15, 2002

To: AAF Tennessee Members

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

Re: Services Tax Threat

A new proposal to tax services has surfaced in the state legislature and could be voted on by the full House of Representatives as early as this afternoon.

It is essential that you and other members of the advertising industry call or email legislators and let them know you oppose any plan that would place a tax on advertising. Please distribute this alert to other members of your advertising federation.

Tennessee legislature's Web page is www.legislature.state.tn.us. The page has tools to help you look up your representatives and find their telephone number and e-mail address.

Advertising should not be taxed 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 most Tennessee consumers using untaxed out of state media 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.

Do not hesitate to give me a call at 1-800-999-2231 if you have any questions.