Florida Moves to Tax Advertising

Jun 29, 2008  •  Post A Comment

Florida is reviving its two-decade-old movement to implement service taxes, and broadcasters and media groups who fear the worst—a major new tax on advertising revenues—are readying a major advertising and promotional campaign to combat it.
The Florida Association of Broadcasters, joined by ad groups and media groups, says the campaign will launch in July. The battle is reminiscent of the one 21 years ago when the Florida legislature approved an ad tax, only to reverse course six months later.
This time the immediate target is a November referendum vote on a constitutional amendment to cut state property taxes by 25%. Called Amendment 5, the proposal was added to the ballot by Florida’s Taxation & Budget Reform Commission and heavily pushed by one of its members, former state Senate President John McKay, a real estate developer. While cutting property taxes, which in the state support schools, the bill directs the legislature to replace the $11 billion lost.
Business groups, advertisers and media companies say the proposal’s wording effectively mandates Florida’s legislature to eliminate sales tax exemptions on service industries—among them advertising and media—in order to replace the revenue. The proposal, for instance, prevents the legislature from raising the current 6% state sales tax on products by more than 1 percentage point.
“When you get down to reality, you are forcing the legislature to act,” said D. Patrick Roberts, president-CEO of the Florida Association of Broadcasters.
Mr. Roberts warned an advertising tax could be devastating to the state. When the Florida legislature passed an advertising tax in 1987, conventions were moved, advertising in the state was canceled and some smaller companies left before the legislature reversed course.
Broadcasters alone saw $93 million in ad sales canceled.
“It’s now 20 years later. You are talking about $250 million [at stake now], at least,” Mr. Roberts said.
Mr. McKay rejected suggestions that the amendment’s passage would lead to new service taxes as not “even being close to the truth” and said there is absolutely no chance the state legislature would pass an ad tax.
“There isn’t a snowball’s chance in hell because of the effective job the ad community did in 1987,” he said. “The legislature wouldn’t consider it for a second, and anyone who tells you otherwise is naïve or dishonest.”
He also suggested the property tax cut would boost home sales and, in turn, furniture and appliance sales for the home, raising additional sales tax revenues and easing some of the need for new taxes to replace lost revenue. What money is needed could be raised by eliminating some exemptions and exclusions and possible sales taxes on Internet purchases, he said.
“The hypocrisy is that the groups opposing this are groups that represent big business. This helps the average Florida homeowner. It is not designed to help big business,” Mr. McKay said.
David Daniel, VP of government affairs for the Florida Chamber of Commerce, said despite Mr. McKay’s assertion, the possibility of a service tax is definitely there.
“To assume the state can take a hit and not feel it is very convenient,” Mr. Daniel said. “Once you take the majority sales tax exemption off the table [as a replacement], I think [a service tax is] inevitable if not explicit.”
Mr. Daniel said that in addition to the ad campaign, the Chamber of Commerce will be among groups supporting a lawsuit challenging the amendment’s inclusion on the ballot.
Anne Grigsby, who as governor of the American Advertising Federation’s southeast division coordinates ad clubs in Florida and also owns a Boca Raton design firm, said coordinating and informational meetings about the campaign have been held for broadcasters, newspaper publishers and business groups.
“We have the beginning of a coalition between the Florida Association of Broadcasters [and] outdoor companies, and we are holding meetings around the state to get the word out,” she said.
Mr. Roberts said the ad campaign being readied by the Victory Group will get extensive media time from broadcasters and media companies, with one focus being to suggest that the switch would benefit part-time residents and developers while hurting year-round residents.
He also questioned the level of uncertainty about revenues the tax could create.
“It is so far-reaching and so massive and it could make the tax system so volatile that the future leadership of the state House and Senate, schools and school boards are coming out against this,” Mr. Roberts said.
In Washington, advertising groups said they feared the Florida action because it could give ideas to other states hard-pressed by the economy. Officials noted that states from Texas to California have major holes in their budgets as tax revenues drop.
“We see these issues pop up all the time, as long as the economy is not strong,” said Jeff Perlman, executive VP of the American Advertising Federation. “As long as state legislatures need the money, advertising or service taxes is something they look at.”
(Edited at 12:40 p.m. EST)


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