February 20, 2007

Legislative Activity

To: AAF Iowa Members

From: Clark Rector Jr., Senior Vice President – Government Affairs

Re: Political Advertising Tax Legislation

Last week I alerted you to a campaign finance proposal by Iowa State Representative Pam Jochum, D-Dubuque, that includes a proposed one percent tax on political advertising to fund the reform.

At a Monday meeting of a subcommittee of the Committee on State Government, a representative of the Revenue Department told members that they could not single out political speech for taxation and that a political advertising sales tax at a different rate than the general sales tax would be discriminatory.

We have learned that some members of the subcommittee are considering altering the bill to impose the full sales tax rate on all advertising in order to raise revenue for the clean election fund established by the bill.

It is very important that members of the advertising industry in Iowa contact the subcommittee members and express strong opposition to any tax on advertising. Subcommittee members and their contact information are listed below, as are talking points against a tax on advertising.

Please do not hesitate to contact me at (202) 898-0089 or crector@aaf.org if you have any comments or questions.

Subcommittee members:

Pam Jochum, D-Dubuque: pam.jochum@legis.state.ia.us
Beth Wessel-Kroeschell, D-Ames: beth.wessel-kroeschell@legis.state.ia.us
Vicki Lensing, D-Iowa City: vicki.lensing@legis.state.ia.us
Carmine Boal, R-Ankeny: carmine.boal@legis.state.ia.us
Jeff Kaufmann, R-Wilton: jeff.kaufmann@legis.state.ia.us

At 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 three percent. In Florida they decreased 12 percent!
  • Advertisers can reach many Iowa consumers using untaxed out-of-state media from across the border. During the 1987 Florida tax, Pensacola broadcasters encountered revenue losses of 45 percent. Most of that money went across the border to competitors in Mobile, Ala.
  • 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.