February 23, 2001

Legislative Activity

Date: >February 23, 2001

To: AAF Members

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

Re: Advertising Tax Proposals

Services taxes, including advertising, are currently being considered in three states.

Minnesota
Minnesota Governor Jesse Ventura (I) has proposed a comprehensive tax reform plan, which would include extending the state's sales tax to include advertising and most currently exempt services.

The advertising and services tax is part of a comprehensive plan to reduce property taxes and shift primary responsibility for education funding from localities to the state.

AAF member Steve Bergerson has testified against the tax at hearings in both the House and Senate. Most observers in Minnesota do not believe the Governor's plan will be enacted. AAF and the local advertising industry will continue to urge lawmakers to reject the advertising and services tax.

Tennessee
Governor Don Sundquist (R) has proposed a comprehensive tax plan that would extend the sales tax to all currently exempt products and services, including advertising. The state sales tax rate would be reduced from 6 to 4 percent. The plan would also target high income Tennesseans by expanding the 6 percent corporate income tax to sole proprietorships and partnerships.

Tennessee lawmakers have been wrestling over various proposals to reform the tax code for well over a year. Tennessee is one of the few states with no state income tax. Under current projections, tax collections for the current fiscal year could be more than $125 million short.

Governor Sundquist's plan is only one of many that will be considered by the legislature, including controversial calls for an income tax. The Governor has indicated that he is not wedded to the services tax and will consider any plan "that's fair, that raises revenue, that reforms taxes, that's simple, where everybody pays their fair share."

AAF will continue to work with Nashville Advertising Federation legislative chair and Tennessee Association of Broadcasters executive director Whit Adamson, and our other in-state members to oppose an ad tax.

Nebraska
State Senator Kermit Brashear (I-Omaha) has introduced a bill to expand the sales tax to include most services, including advertising. He would use the revenue to decrease property and income taxes.

A February 21 hearing on the bill drew near-universal opposition to the tax. Senator Brashear acknowledged that it has little chance of passing. Representatives of our local AAF clubs — Advertising Federation of Lincoln and Omaha Federation of Advertising — have been in contact with lawmakers to register industry opposition to the legislation.

While none of the three tax proposals appear to be close to passage, they signal challenging times ahead for the advertising industry. With the current economic slowdown, many states are receiving less revenue than they anticipated to fund their budgets. If the situation continues, we can expect to see more states consider the possibility of raising additional revenues. Past experience has taught us that services taxes, including advertising, are likely to be high among potential tax options.

AAF will continue to work aggressively with our over 210 local advertising federations across the country to oppose all attempts to tax advertising.