Local TV

Stations Warned About Cash-Hungry States

Stealth taxes could take a bite out of already depleted ad bases 3/29/2010 04:30:00 PM Eastern

Q&A: AAAA's Linda Dove

Ad exec tells B&C's John Eggerton about new audits. Click here for more.

At their legislative/regulatory
meet-and-greet in Washington
recently, broadcasters
met with ad industry lobbyists
to get some insight on
potential local government threats to an
already dwindling advertising
base.

What they discovered
wasn’t pretty. After an election
year where there will
likely be little political will
to take on tax reform, 2011
could see the return of the
dreaded sales tax on services,
including advertising.

Clark Rector, executive VP
at the American Advertising
Federation, recalled the
time in the mid-1980s when
Florida imposed a sales tax
on ad services. Broadcasters in the Pensacola
area lost about 45% of their revenue
over the six months the duty was levied,
as dollars flew across the Alabama border
to Mobile.

“Potentially, a sales tax on services could
mean the loss of millions of dollars” in station
ad revenue, Rector says, depending
on how many states do it and how broadly
they choose to defi ne it. “If states begin
increasing the price of advertising by 5%-
8%, the best-case scenario
is that [stations] are going
to lose that 5%-8%. Advertiser
budgets stay the same,
so they will have to make
lesser buys. And anybody
who is buying on a regional
or national basis is going to
pull a fair amount of money
out of those states and put it
in other states where they are
going to get better value for
their advertising dollar.”

Linda Dove, senior VP of
the American Association of
Advertising Agencies (AAAA), who talked
with broadcasters at the Washington fly-in,
agrees that the services tax could become
a bigger threat once midterm elections are
over. “This is not the year they are going
to take on tax reform,” she says. “We will
hear a lot more conversation about this in
2011.”

Dove says the industry is always at risk
of efforts to impose a sales tax. In particular,
states that depend largely on manufacturing
and production of tangible personal
property, or rely heavily on property taxes
and sales taxes on cars, have to look at
other sources when those revenues begin
to shrink. This is true, Dove adds, even
though state legislatures are hesitant to go
after business-to-business transactions in a
still-struggling economy.

Though Dove warns that there may not
be any direct frontal attacks this year, she
is already seeing a “stealth campaign” (see
sidebar). As she puts it: “We are seeing hidden
fees and taxes and audits that allow the
states to get money, but they are not directly
confronting the business community.”

Q&A: AAAA's Linda Dove

Ad exec tells B&C's John Eggerton about new audits. Click here for more.

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