May 9, 2003

Legislative Activity

Date: May 9, 2003

To: AAF Texas Members

From: Clark Rector, Jr., SVP-state government affairs
Jeff Perlman, EVP-government affairs

Re: Ad Tax Update

Earlier this week the Texas Senate, as expected, unanimously passed Lt. Governor David Dewhurst's (R) school refinance plan (SJR 1 and HB 5). The proposal would lower property tax rates, raise the state sales tax and extend the sales tax to all service except medical and dental services. Advertising time and space and agency services would be taxed if the Dewhurst plan becomes law.

On the House side, Speaker Tom Craddick (R) would prefer to deal with the school refinance issue in special legislative session and has indicated the Dewhurst plan is unlikely to pass in the House. Governor Rick Perry (R) also favors a special session.

While these signs are positive, the situation is still very volatile. The advertising tax will remain a serious threat until the legislature adjourns in June. It is very important that members of the advertising industry continue to contact lawmakers and register opposition to the harmful tax on advertising.

Contact information for members of the House and Senate can be found on each chamber's webpage. Also included are talking points against a tax on advertising. Please do not hesitate to contact us if you have any comments or questions.

An advertising tax 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 3 percent. In Florida they decreased 12 percent!
  • Advertisers can reach many Texas 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, 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.