CONNECTICUT APPROVES 3% ADVERTISING TAX

Measure to Take Effect April 1

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WASHINGTON (AdAge.com) -- A 3% Connecticut tax on advertising, public relations and direct-mail creative and production, but not media buys, work will take effect April 1, part of a tax-increase package to address the state government's budget crisis.

Ad groups said the tax, half the 6% originally proposed, would put Connecticut agencies at a disadvantage, but the impact won't be entirely clear until the state issues rules for how the tax will be imposed.

Neighboring states
Linda Dove, senior vice president

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of the American Association of Advertising Agencies, said neighboring Massachusetts exempts advertising agency services, and New York doesn't tax services related to media advertising and exempts promotional materials.

There was disagreement on how much revenue the Connecticut tax will generate. Ad groups arguing that some parts of state ad production are already taxed said the new tax will generate less than $1 million, but state officials are counting on far more.

The new ad tax was part of an emergency effort to fill a gaping hole in the state budget as the economy cut revenues. While the tax is effective through the end of the fiscal year, what happens after that remains uncertain. Gov. John G. Rowland has unveiled a budget proposal for the next two years that proposed $1.1 billion in cuts and consolidations.

Hired a lobbyist
Ad groups said they have hired a lobbyist to fight keeping the tax after the current budget year.

The Connecticut action comes as several states hurt by the economy look to new ways to raise revenues or cut costs.

In some of the latest examples, the Association of National Advertisers warned about legislation introduced in Arkansas and Nebraska calling for applying the state taxes to advertising services.

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