GOP CONGRESS RAISES RENEWED AD-TAX THREAT

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WASHINGTON-The ad industry could face intensified state efforts to tax ad-related services if the new Republican Congress carries through on promises to cut taxes and balance the federal budget.

National Governors Association Executive Director Ray Scheppach singled out the GOP-promised balanced budget as perhaps the most serious fiscal threat to states from the Republican wins.

In seeking to comply with requirements of a balanced budget amendment, Congress likely will shift responsibility for implementing and financing many programs now handled at the federal level to the states.

With about $2.6 billion in cumulative state tax cuts for fiscal 1995, states may be forced to bite the bullet and find revenue to fund the programs. And that could mean taxes on professional services, according to a study released last week by the governors' group and the National Association of State Budget Officers.

Although the report, prepared before the elections, dwells on the improved finances of most states, it also predicts increasingly tight times for states.

"The pressures of providing adequate education funding, achieving local property tax relief, complying with lawsuits and mandates, and maintaining capital assets will continue to place a strain on state budgets," the study said. "States are examining their tax structures to look at responsiveness and equity issues from the perspective of all taxpayers. Some of the issues states are examining include the services covered by the sales tax, interstate competition and application of the corporate tax to multistate corporations."

Clark Rector, VP-state affairs, American Advertising Federation, agreed the Republican agenda in Washington "puts more responsibility on the states to pay for programs."

"In the short term, the election results shouldn't do too much .*.*. but longer term, the states are going to be looking at the need for money, and the prominence of new services as a possible source has not changed," Mr. Rector said. "And advertising will always be at the top of that list."

Although no state has implemented an ad tax since Florida's ill-fated 1986 effort, the prospect still exists.

In fact, Wisconsin Gov. Tommy Thompson may endorse a tax on business services next year to offset a cut in the property tax that had provided more than $1.5 billion for schools. Gov. Thompson already has rejected increasing the existing sales tax.

"Wisconsin is the state in a position to really do something," Mr. Rector said. "It's the $1 billion question. We're waiting to see what happens, and we should have a better idea after January. It should be an interesting year."

As AAF President Wally Snyder said, it's often easier for Republicans to implement business-unfriendly initiatives than Democrats.

"After all, it was easier for Richard Nixon to go to China than it would have been for any Democrat," he said. "And in Florida, it was then-Gov. Bob Martinez, a Republican, who pushed through the tax on advertising."

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