PENNSYLVANIA CONSIDERS 6% AD SALES TAX

Surprise Legislative Effort Aims to Cut Property Taxes

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WASHINGTON (AdAge.com) -- Advertising and media groups returning from the long holiday got a quick wake-up call with a surprise proposal by the Pennsylvania Legislature to impose a major advertising tax.
A surprise effort in the State Capitol in Harrisburg seeks to impose a tax on advertising to help lessen the burden of property taxes.

6% on all advertising
In a last-minute bid to cut state property taxes, the Pennsylvania House of Representatives Dec. 20 voted to remove the sales tax exemption on a number of services including advertising, a move that would make all advertising in the state subject to a 6% sales tax. That prompted an outcry from advertising and media groups and some fast footwork to circumvent the proposal, which goes to a State Senate committee tomorrow.

“We are definitely concerned. It’s a big surprise,” said Linda Dove, senior VP of the American Association of Advertising Agencies. “Property tax reform is the No. 1 issue, and there is a mistaken idea that a tax on the media can provide it.”

Ad industry response
Dan Jaffe, exec VP of the Association of National Advertisers, said his group is also taking the tax seriously, joining with broadcasting and newspaper groups in the state to warn that the tax could have significant impact on the state’s economy. He said a study by the advertising industry shows Pennsylvania generates $225 billion each year and 885,000 jobs from advertising.

“When you start to impose a burden on the selling process, it’s highly likely to be counterproductive,” Mr. Jaffe said, suggesting advertisers will simply shift their spending to media outside Pennsylvania or spend their advertising money elsewhere, as was the case in Florida, which a decade ago passed a similar advertising tax, only to immediately drop it.

Property tax relief
Richard Wyckoff, president of the Pennsylvania Association of Broadcasters, said his group is especially worried because Pennsylvania Gov. Ed Rendell has asked that action on property tax relief be taken by month’s end. “We are extremely disappointed that neither our message nor the Florida experience has gotten through,” he said. “Surprises happen.” He said the group is calling members asking them to contact legislators warning that the tax could cause significant harm.

The ad tax was part of a package offered by Rep. Mario M. Scavello, a Republican, to remove various sales tax exemptions. The details about how it would apply are sketchy; the legislation itself refers to broadcast and newspaper advertising, but not cable, and does not address of how regional ads would be calculated.

Mr. Scavello did not return a phone call for comment.

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