The Michigan Department of Treasury is working with the Legislature to reverse a department policy calling for the collection of sales tax on certain creative services, including photographs and commercial art, that go into the production of advertising. Such creative services had been exempt through a special order issued in 1977 by the then-deputy revenue commissioner. In 1989, however, the department resumed collecting taxes on the exempted services.
On Oct. 13 a group of industry representatives met with legislators and treasury officials in an effort to restore the exemptions. State officials attending the meeting included Michigan Chief Deputy Treasurer Nick Khouri; Deputy Treasurer for Legislation Madhu Anderson; Rep. Bill Bullard, co-chair of the committee on taxation; and Rep. Kirk Profit, a member of the taxation committee.
Representing the advertising industry were Linda Dove, Four A's VP-state government affairs; Jeff Perlman, AAF senior VP-government relations, Clark Rector, AAF VP-state government relations; Keith Scarborough, ANA VP-state government relations; Art Morat, D'Arcy Masius Benton & Bowles, Detroit, and president of the Michigan Advertising Industry Alliance; Gary Naeyaert of Creative Media, Lansing, and legislative chair for the Lansing Advertising Club; and Ron Stone, AAF Michigan legislative chair and legislative coordinator for the Michigan Four A's Council.
While no solution was reached, treasury officials agreed to continue working with advertising industry representatives to reach a compromise. Reps. Bullard and Profit indicated that if an agreement is not reached, the Legislature may address the issue in the 1995 session.
The Legislature in March passed a property tax relief bill that will cost the state $1 billion in the first two-year budget cycle during which it is in effect, about one-third of Wisconsin's total budget. A report issued by the Wisconsin Legislative Fiscal Bureau estimated the state could raise $73.5 million through extending the state sales tax to "advertising business services." While no legislator has suggested advertising be taxed, many believe it will be considered. Representatives of several Wisconsin advertising clubs met with the state broadcasters association to commission an economic study demonstrating the negative effects of an advertising tax.
A school funding commission comprised of the governor, legislative leaders and the state superintendent of schools will be making recommendations for funding next September.
In an opinion issued Oct. 12, New York City's Tax Appeal Tribunal upheld the city's formula for including the compensation of corporation and agency officers as part of an alternative tax base. The Four A's had filed a friend of the court brief, arguing that the alternative tax formula included such compensation without regard to the functions and duties such officers actually perform. In its decision, the tribunal ruled that legal precedent upheld such a tax and declared that relief could only be accomplished by amending the statute which created the tax. The Four A's and other industry groups are considering a legislative modification of the tax law.