Ad-tax threat looms large in seven states

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An 11th-hour proposal to tax media in Connecticut appears to have been derailed in a dramatic lobbying blitz by ad groups. But the specter of ad taxes remains a real threat in seven other states.

The proposed 6% levy would have made Connecticut the first state to enact one since Florida, which passed a sales tax in 1986 only to repeal it a year later after an advertiser boycott. The last-minute nature of the Connecticut proposal left the industry wary of similar under-the-radar proposals in other states desperate to fill shortfalls with new revenues.

"It is the stealth proposal that we really have to worry about," said Linda Dove, senior VP of the American Association of Advertising Agencies. "In Connecticut, this came out at 3 a.m. and in other states you are seeing renegade legislators propose ad taxes and the lure of the projected gains can be very strong."

no placement tax

At press time, it was unclear whether the Connecticut tax was completely beaten back. After a weeklong lobbying effort by the ad industry, Connecticut Senate President Pro Tem Kevin B. Sullivan told the Hartford Courant there would not be a tax on ad placement. He did, however, say that Democrats in the state were still planning to tax "the service of developing advertisement," according to the paper. That would indicate a tax on advertising agencies and marketers that create advertising in the state, which has a well-populated corridor of marketing consultants in the Greenwich and Westport areas.

Mr. Sullivan did not return phone calls for comment.

Matthew Clark, president of the Advertising Club of Connecticut and president of Clark Marketing Research Group, said even the lesser tax would cause problems. "It would hurt Connecticut's advertising industry, putting us at a competitive disadvantage to out-of-state competitors," he said. The Four A's Ms. Dove said a number of states have some tax on advertising services similar to the one that Connecticut is now considering.

But it's the prospect of a state sales tax on media placements that is a far larger concern.

seven proposals

Seven states-Arkansas, Kansas, Maryland, Michigan, Nebraska, Ohio and South Dakota-now have such proposals, according to Dan Jaffe, exec VP of the Association of National Advertisers. Ms. Dove said hearings are being held in several states.

News of the Connecticut tax on media mobilized local broadcasters, newspaper owners and advertising associations to lobby the Connecticut legislature.

John Barrett, CEO, Barrett Outdoor Communications and president of the Outdoor Association of Connecticut, said he was worried the tax could have significant effects on ad spending and might prompt the kind of advertising boycott of Connecticut that Florida experienced.

"We are quaking in our boots," he said. "It would have a major impact on us. Advertisers are all working on fixed budgets. Because the advertising industry doesn't have much in variable costs, it would come right off our bottom line."

Wayne Mulligan, VP-general manager of Buckley Radio and chairman of the Connecticut Broadcasters Association, warned the costs couldn't be passed along, and that the net result would be less advertising, lower sales commissions and less revenue. That, he said, then raises the possibility of a boycott.

Clark Rector, senior VP-state government of American Advertising Federation, said his group is working with the Connecticut ad club to thwart the tax. ANA warned its members about the tax proposal and also wrote Connecticut legislative leaders warning an ad tax would hurt local companies and be difficult to administer.

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