TEXAS TO VOTE ON AD TAX MEASURE

Ad Groups to Testify Tomorrow Against Proposal

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WASHINGTON (AdAge.com) -- Texas becomes the latest state beset by fiscal trouble to consider imposing a tax on advertising services to help balance its budget.

An ad tax of 5% to 8% has been proposed by Republican Lt. Gov. David Dewhurst as one of the steps needed to make up a $5.8 billion shortfall in the two-year Texas budget that starts Sept. 1 without cutting government services.

Eliminating exemptions
Mr. Dewhurst's budget relies on

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Proposal Could Eliminate Advertising Exemption
eliminating a number of exemptions from state sales taxes, including not only advertising, but legal services and financial services such as accounting. The current state sales tax is 6.25% and the budget anticipates it would rise to 7.8%. Municipalities have additional sales taxes that may also apply.

Ad and media groups were moving swiftly to mobilize against the tax, although the proposal is part of a constitutional amendment that is already facing some political fallout.

The State Senate tomorrow will consider a constitutional amendment to pass the budget and include within it the end of the exemptions. Ad groups are slated to testify.

Ann Arnold, executive director of the Texas Association of Broadcasters, said despite talk of the tax, specifics of what is covered have not been announced, and neither has the amount the state expects to raise.

"We don't have how it will be enacted and how it would work," she said. "It's a terrible idea."

Florida boycott
Ms. Arnold said her group and ad groups have been meeting with legislators to inform them of the problems Florida faced in 1997 after advertisers boycotted the state's ad tax, hurting local media. That state's tax was withdrawn nine months after its passage.

"We would hate for Texas to face the incredible disaster that Florida faced in 1997," she said.

The tax has created a complicated political situation. Republican Gov. Rick Perry and the speaker of the House have opposed the proposal, and revenue increases in Texas are supposed to be proposed by the House, not the Senate. The constitutional amendment would allow the Senate to act on it.

Texas is one of 15 states considering ad taxes. Connecticut recently ended up passing a scaled down tax on advertising services, but the state didn't enact a tax on media.

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