TEXAS LEGISLATORS RESURRECT THREAT OF STATE AD SALES TAX: BROADCASTERS' MEMO TURNS UP HEAT IN DEBATE

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A Texas House of Representatives committee last week tentatively decided to remove advertising's sales tax exemption as it considers revamping the state's taxes.

The exemption on advertising was one of a number of exemptions the panel talked of eliminating in a broad discussion of tax reform, but the danger to advertising quickly heightened after committee members learned of a memo sent out by broadcasters.

'IT'S BLACKMAIL'

"It's blackmail," one observer quoted the committee chairman as telling the hastily summoned executive director of the broadcasters group at a March 6 meeting of the panel. "You intended to inflame your members, and because of that, this [advertising exemption] is not going to be off the table."

Removing advertising's tax exemption was a major issue 10 years ago in Florida. That state dropped the exemption, then reversed itself six months later after the decision cost the state millions of dollars in tourism and conventions and gave Florida an anti-business reputation.

Ad and business groups say the sales tax exemption treats advertising as a product cost, and that eliminating the exemption risks making state products uncompetitive with those from other states.

Texas legislators discussed the Florida experience, and said the discussion of removing advertising's exemption was simply part of an overall examination of all state tax exemptions as the panel tried to develop an alternative to Gov. George W. Bush's tax revamp.

LOOKING AT ALL OPTIONS

"We want to view all the options that we have [listed] as exemptions on sales and franchise taxes," said state Rep. Paul Hilbert, committee vice chairman. "It's an exercise to arrive at an end, an intellectual discussion about what kind of system we could devise as an alternative."

People attending the March 6 meeting of the House's Select Committee on Revenue & Public Education Funding described members as infuriated that their preliminary discussions of various possibilities prompted the Texas Association of Broadcasters to issue a warning, especially since the memo wrongly stated the decision would cost advertisers and media companies "$2.45 billion" over two years. In fact, dropping the exemption would raise $245 million.

LITTLE TIME TO OK LEGISLATION

The Legislature meets only until June 4, giving the House, which must first approve a tax measure, relatively little time to send legislation to the Senate.

Ad groups, having not taken the threat of Florida action seriously enough 10 years ago, say they don't intend to repeat the mistake.

"Though it may look like a small match, we are not waiting for the forest fire to start putting it out," said Dan Jaffe, exec VP of the Association of National

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