May 16, 2002

Legislative Activity

Date: May 16, 2002

To: AAF Tennessee Members

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

Re: Update - Services Tax Threat

The House of Representatives did not vote on the services tax bill (HB 2942) on Wednesday as was feared. The sponsors pulled the bill from consideration when revenue projections came in lower than they expected.

However, the proposal is not dead. The sponsors are expected to make changes and bring it back next week. The plan now is bring both the services tax and income tax bills before the House next Wednesday, May 22 and let legislators choose between the two.

As currently drafted the services tax bill does not tax purchases of time and space, but does include agency services, creative and production costs.

It is important for advertising professionals to contact legislators and let them know the industry opposes any plan that would place a tax on advertising services.

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

Advertising agency services should not be taxed because:

  • Tennessee advertising agencies will be put at a competitive disadvantage. Advertising is an extremely portable service. Clients can easily take their business to agencies in any of the eight border states that do not have a surcharge on agency services.
  • Local businesses will suffer. The clients least able to use out of state agencies will be small, locally owned businesses, which will find it that much harder to compete with larger companies.
  • Placing a tax on advertising services increases the cost of advertising. Because most clients operate on a fixed advertising budget, those using Tennessee agencies will compensate for the tax by decreasing their advertising purchases. This will have a direct -- and negative -- impact on their business, 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.

Please do not hesitate to contact me if you have any questions at 1-800-999-2231.