Agencies ‘Gear Up’ as States’ Ad-Tax Threat Looms

No U.S. state is yet considering legislation taxing ad time and space, but the industry has cause to fear that this perennial threat might have some teeth in 2003.

“There is general agreement in the business community that the tax issue at the state level is more dangerous now than at any time in recent history,” said Dan Jaffe, evp of government relations at the Association of National Advertisers.

The ad-tax issue emerges nearly every year with the introduction of bills in at least a handful of states, but they usually fail to pass. This year, in dustry lobbyists said, states are more likely to seriously consider the tax, given the widespread budget deficits.

“We are gearing up,” said Clark Rector, svp of state government affairs at the American Advertising Federation. “When … states have less income coming in than anticipated and more expenses going out, that is a recipe for trouble.”

According to the National Conference of State Legislatures, two-thirds of the states reported declining revenues that will result in a collective $17.5 billion budget gap to fill before June 30. By law, all states except Vermont must have balanced budgets.

National Governors Association executive director Raymond Scheppach recently told the State Advertising Coalition that this is “the worst crisis in state finances since World War II.”

Arizona, Florida and Iowa have passed ad-tax laws in the past, but all were repealed. In 2002, Florida, Neb raska, Oklahoma and Tennessee were among the states that introduced ad-tax bills, but none passed. While it is too early to say which states might act, insiders are closely watching Michigan, where the education association has called for a tax on ads.

Industry groups are funding studies to determine the effect of ad taxes on the economy. A recent study done for the Advertising Tax Coalition, which includes publishers, noted, “The economic activity generated by advertising supports 18.2 million of the 126.7 million jobs in the U.S.”