States Putting Squeeze on Ads to Raise Funds

Across the Country, Bills Are Being Proposed to Tax, Restrict Industry

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NEW YORK (AdAge.com) -- The marketing industry isn't just under threat of regulatory pressure by the federal government -- it's also under fire in states across the country. The issues range from pushes to tax advertising (under discussion in the legislatures of at least 15 states) to a county supervisor in Virginia asking his legislative committee to determine if it can regulate "human billboard" advertising.

"States are under enormous financial pressure and they're looking at any source they can find," said Dan Jaffe, exec VP-government relations for the Association of National Advertisers. "That's ... why there are more taxes and creative ways to tax the industry to pay for programs that are being somewhat diminished."

There have been several proposals so far this year to tax or restrict advertising, notably in South Dakota and Arizona. The legislation in South Dakota was killed in committee and the Arizona proposal never came to a vote. Bills have been introduced in the New York State Assembly to restrict the deduction for direct-to-consumer prescription drug advertising, and to tax ads for certain foods, beverages and entertainment products to combat childhood obesity. Neither bill has moved.

A bill was introduced in the Massachusetts legislature to ban all alcoholic-beverage ads on public facilities, such as trains and bus shelters. A hearing was held last month, but the bill has not moved.

In Florida, seemingly the headquarters of advertising industry headaches, a bill introduced to repeal the ad-tax exemption last year was shot down (again), but a bill to end the ad-tax deductibility for pharmaceutical companies is on the table.

Fight in Maryland
Even in states where the threats are benign at the moment, the industry is bracing. "In Maryland, most advertising services are not subject to sales tax, but tangible items produced from advertising services and equipment used in producing ads are taxed. So we have seen an uptick in sales audits of agencies and production companies," said Cynthia Blake Sanders, the legislative committee chair for the American Advertising Federation's Baltimore chapter.

Ms. Sanders, who said Maryland has an economic climate that is "hostile to business, including those in advertising and communications production," said AAF-Baltimore is assisting the national AAF in opposing any federal cessation of the business expense deduction for health-care advertising. "But we have seen signs that the Maryland delegation may not back the advertising community in this fight," she said.

Said Mr. Jaffe: "There's been real anger at the business community right now because the government believes the business community failed in their responsibilities and brought on this current economic crunch. ... But, unfortunately, sometimes these regulations make the problem worse."

New York has been another bugaboo state for the ad industry. The state has already passed a bill that forces consumers who buy products from internet sites based in New York to pay state sales tax -- dubbed the "Amazon Tax" -- which resulted in dozens and dozens of marketers pulling their ads on New York-based websites. Now New York City has angered the beverage industry with its anti-obesity ad campaign that targets sugared drinks.

In Michigan, where the economy is one of the worst in the nation, the state Senate is voting this week on tax incentives being offered to filmmakers. Michigan currently offers a 40% tax break to entice filmmakers to come to the state, and it has worked -- Clint Eastwood filmed "Gran Torino" there two years ago, and an Ernst & Young study showed that states realize strong ROI with the credits (New York got $1.90 back for every $1 in tax credit; New Mexico realized $1.50 back on every $1).

But the Michigan Senate has interpreted the current bill to exclude commercial filmmakers, which could severely curtail the ad industry in the state. "We've already talked to the Big Three automakers and they said they would commit to between 40% and 50% of their commercials to be produced in Michigan [if commercial filmmakers receive the same tax credit as movie makers]," said Bill Ludwig, vice chairman of Warren, Mich.-based Campbell Ewald. Mr. Ludwig says a report shows that participation just from the automakers alone would reap, conservatively, $20-$30 million and create 1,300 permanent jobs and 15,000 work-a-day jobs.

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