New taxes on advertising haven't yet been proposed in Congress, but that hasn't stopped financially strapped states from considering them. Governors John Kasich (R-Ohio) and Mark Dayton (D-Minn.) have both proposed new taxes on advertising and other business services as part of their 2014 budgets.
In both cases, the proposals call for reducing the sales tax, but increasing taxes on services. Kasich proposed a 5 percent tax and would only allow exemptions for services considered to be essential to modern life, such as healthcare.
If such proposals go through, advertisers are likely to shift some dollars out of the states, resulting in lower ad revenue for area broadcasters, newspapers and billboards.
"Everybody in the advertising food chain gets hurt, but the local media are the ones that really get hit," said Keith Scarborough, the Association of National Advertisers' svp for government relations.
Given the economic climate, advertisers and media were bracing for states and Congress to eye new levies on advertising.
"Over the last 20 years, we've been able to build coalitions with broadcasters and other media and fight back ad tax proposals," Scarborough said. "It's still early in the process, but anytime these issues show up, we have to take it seriously."
The last time a state taxed advertising, it was a business disaster. After passing a broad service tax including advertising in 1987, Florida was forced to repeal it six months later after business began leaving the state.
But the case of Ohio could have more momentum. Gov. Kasich seems to be particularly fond of the move, having offered a similar proposal when he chaired the House budget committee. "At the time, he called it corporate welfare," Scarborough said.
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