The Texas Advertising Coalition—made up of the Texas Association of Broadcasters and other Houston-area media companies and executives—is urging Rep. Kevin Brady (R-TX) to reject any tax reform proposal that would put limits on how marketing expenses can be written off.
“The cost of advertising is as essential to a business as the salaries paid to its employees, the rent for buildings and equipment, and all of the other regular costs of doing business—all of which are currently deductible as ordinary and necessary. Nor has this cost ever been classified as tax expenditure, or a departure from sound tax policy,” they write in a letter to Brady, who serves as the chairman of the House Ways and Means Committee. CBS Radio, Cox Media Group, Cumulus Media, iHeartMedia, Salem Media Group and Univision are among the companies backing the effort.
The Coalition points to data that shows in Texas alone advertising expenditures account for $532 billion of the state’s economic output and it helps support 1.7 million jobs. “We urge you in the strongest terms to reject a proposal to alter in any way the…treatment of advertising as an ordinary and necessary business expense,” the letter said.
The outreach comes several months after the Texas Association of Broadcasters warned stations’ bottom line would be “severely impacted” by the creation of an ad tax. In February, more than 60 Texas broadcasters signed a letter to the Texas Congressional delegation urging them to preserve the current deduction. “While more of a ‘backdoor’ ad tax than a straightforward transactional sales tax, this change would still provide a disincentive for businesses to advertise and defeat the very purpose of tax reform which is to increase economic activity,” TAB president Oscar Rodriguez wrote in an update to members four weeks ago. According to the trade group so far seven Texas congressmen have gone on record opposing an ad tax—a list that doesn’t include Brady.
One of Brady’s counterparts on the House Ways and Means Committee recently said that Republican leaders will “move with dispatch” on a tax reform bill once work on the budget wraps up. Rep. Peter Roskam (R-IL) told The Hill, “everyone knows the basic concepts” of what the reform package will include. But he didn’t offer any details of how $1.5 trillion in proposed tax cuts would be paid for.
That’s the biggest risk for the industry, according to the National Association of Broadcasters. NAB president Gordon Smith told Inside Radio last month the ad tax could be seen as a way to offset other cutsin taxes elsewhere in the plan. “While we’re prepared for the worst, we have reason to be hopeful that in the end advertising will remain fully deductible,” he said. Smith said that broadcasters would continue to make the case that the tax reform goals of simplicity and economic growth would be undermined by changes to how businesses can write off ad expenses. “Advertising is a driving engine of the American economy, supporting millions of jobs and generating hundreds of billions in local economic activity, and this deduction must be fully retained in any successful tax reform effort,” Smith said.
The NAB has joined with the Association of National Advertisers (ANA) and other media and advertising organizations to form The Advertising Coalition to fight any ad tax proposals that may emerge. While the group supports lower corporate tax rates, in June the Coalition submitted a seven-page outline to the House Ways and Means Committee of why it opposes an ad tax, including its potential to hurt media outlets in rural communities. “One of the unintended consequences of the proposed tax on advertising is that it would result in less information being available to consumers through internet publishers, newspapers, magazines, radio and television stations and networks, and cable networks and operators,” the Coalition warned. A similar letter to the Senate is in the works. NAB has also set up a webpage that allows people to easily voice their opposition to an ad tax to local members of Congress.
The ANA has estimated that changes could cost the marketing community as much as $200 billion in new taxes over the next 10 years and predicts businesses would pull back the amount of money they spend on advertising. That in turn would have devastating effects on the American economy. An IHS Economics study commissioned by the trade group has shown that every dollar of ad spending generates $19 of economic activity in the U.S.