October 15, 2008

To: AAF Members
From: Clark Rector Jr., Senior Vice President – Government Affairs
Re: State Advertising Taxes

Most of the coverage of the current financial crisis has focused on federal efforts to bail out the economy and the resulting impact on the federal budget. Many observers are warning that the economic slowdown also has begun to lead to declining state tax revenues.

When faced with declining revenues, states naturally look for savings in existing programs. However, Scott Pattison, executive director of the National Association of State Budget Officers, has warned that there is only so much cutting a state can do. In an interview with State Tax Notes he warns that next year’s budget outlook will only get worse: “It could get to the point where cuts are just so bad that you cross the threshold where people find them so bad, you may have more of a climate for tax increases.”

Don Boyd, a senior fellow at the Rockefeller Institute of Government agrees. Quoted in the same article he states, “Taxpayers expect to look for easy cuts. But faced with fewer teachers for my kids or money out of my pocketbook, they’re going to choose taxes.”

A new report issued by the Center on Budget and Policy Priorities says that at least 15 states face new budget gaps three months into the fiscal year and expects more states to make similar announcements.

We know from past experience that when searching for new revenues, many state legislators will look at expanding the sales tax to excluded goods and services, often including advertising and other business services.

Given the economic climate and assessments cited above, it is not a question of if, but where and when, we will face ad tax fights. It is more essential than ever that we keep a vigilant watch on activities in the 50 state capitals. It is up to all of us to be on the lookout for any prospective threats to advertising.

Please do not hesitate to contact me if you have any comments, questions or information about possible legislative activity. I can be reached at 202-898-0089 or crector@aaf.org.