March 1, 2002

Legislative Activity

Date: March 1, 2002

To: AAF Members

From: Clark Rector, Jr., Vice President-State Government Affairs

Re: Tennessee Advertising and Services Tax Threat

Next week, the Tennessee legislature is scheduled to consider a plan to tax advertising and other services currently exempt from the sales tax.

The measure is scheduled for a vote in the Senate Finance Committee on Tuesday and in a subcommittee of the House Finance Committee on Wednesday. The full Senate could consider it as early as next Thursday.

It is very important that members of AAF’s Tennessee advertising clubs and other advertising industry representatives contact Tennessee legislators and let them know that taxing advertising is not a solution to the state’s budget problems.

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 percent. In Florida they decreased 12 percent!
  • 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 45percent. 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.

Please contact your Senator and Representative as soon as possible and let them know you oppose a tax on advertising. Telephone numbers and e-mail addresses for lawmakers can be found on the Tennessee Legislature Web site at www.legislature.state.tn.us. There is also a link that will allow you to find the name of your representatives.

Please do hesitate to call me at 1-800-999-2231 if you have any questions.