Recent News: March 21, 2013 Ohio Advertising Tax Coalition Testifies that Ad Tax Will Damage Ohio's Economy Click here to read more
It's BAD... FOR BUSINESSES, CONSUMERS & OHIO It's just a BAD idea.
A sales tax on advertising would result in the loss of 48,911 jobs in Ohio.
(Source: L.R. Klein & IHS Global Insight, 2010)
An advertising tax is bad for the economy. A landmark study released in 2010 by the world-recognized consulting firm IHS Global Insight, under the auspices of Laurence R. Klein, Nobel Laureate in Economics, shows that advertising stimulates sales and jobs throughout the economy.1 Advertising helps businesses build brand awareness and communicate with consumers. In turn, this triggers a cascade of economic activity and stimulates job creation.3 This same study found that advertising expenditures help generate $198.5 billion in economic output in Ohio – just over 20% of the total economic output in the state.1
Advertising is the most economically efficient means of marketing a product to consumers.2 By providing information in a cost-effective manner, it helps the economy function and lowers prices.3 An advertising tax would slow economic growth.3 Studies by Global Insight show that a tax on advertising reduces local employment and personal income by substantial amounts. When the cost of advertising goes up, businesses advertise less, which leads to less consumer demand and purchasing. This slows the economy and reduces government revenue. In fact, it is estimated that a sales tax on advertising would decrease sales in Ohio by $12.1 billion.
There are 48,911 reasons why an ad tax is a bad idea….lost jobs. According to IHS Global Insight, a sales tax on advertising would result in the loss of an estimated 48,911 jobs in Ohio.1 Currently, advertising-driven sales of products and services help support more than 780,000 jobs in the state, which account for approximately 15% of the jobs in Ohio.1
An ad creates an unfair “double tax”or tax “PYRAMIDING.” A tax on advertising would create a new layer of hidden taxes because of problems of pyramiding or double taxation. Pyramiding occurs when the sales tax is imposed on business services at the intermediate level, rather than being imposed only on the final purchase of the product by consumers. Advertising is not an end product, like a bar of soap. Rather, advertising is an input process, that helps produce the final sale of the bar of soap, which is already subject to the state sales tax. Since a portion of any tax on the intermediate advertising process is likely to be passed along to consumers, there would be at least double taxation for most products or services purchased in the state.
An ad tax sends an anti-business signal and gives unfair advantage to out-of-state competitors. A tax on advertising would send a strong anti-business message to firms that are considering business operations in Ohio. Advertising dollars that are currently spent in Ohio would be shifted to media outlets outside the state. When advertising is taxed, taxed businesses are placed at a competitive disadvantage because of the discrimination they face relative to national and out-of-state businesses whose advertising purchases may not be subject to the same tax.2
Similarly, there is no legal way to require out-of-state advertisers and merchants to remit sales tax on advertising, goods and services directed at Ohio consumers. Web-based merchants like Google and Yahoo would not be subject to the tax, which gives them an unfair advantage over Ohio companies competing for the same consumers.
Every attempt to tax advertising in other states has failed miserably. An advertising tax is not a new idea, just a bad one. Since 1987, 40 states have considered and rejected a tax on advertising.1 Florida is the only state which has enacted a sales tax on advertising, but quickly repealed the taxes because it was impossible to administer, and it had an adverse economic impact.1 Today, no state in the country applies a sales tax to advertising. Recently, Governor Dayton of Minnesota removed a business-to-business sales tax (including a proposed sales tax on advertising) from his budget that is scheduled to be released the week of March 11, 2013.
An advertising tax is too complex and expensive to administer effectively. Administering an ad tax would be a massive burden for businesses and state governments, particularly allocation of tax for national and regional advertising programs.1 Advertising is a complex field, involving millions of ads placed with television, radio, magazines, newspapers, billboards, and a variety of media.1
In Florida, during the six-month period before its ad tax was repealed, the Department of Revenue was unable to develop final regulations to administer the law efficiently.1 It also processed 12 million magazine advertising transactions alone, and found that the administrative costs exceeded tax collections.4 Florida also found that the ad tax resulted in a loss of an estimated $100 million in advertising revenue that went to surrounding states, and that although ad purchases increased an average of 3% nationally, they decreased by 12% in Florida during the same timeframe.4
A tax on advertising hinders public access to news and information. A tax on advertising would reduce the amount of local news, and entertainment available to the public. Advertising is vital to the dissemination of most of the news, information and entertainment in society.
A tax on advertising is bad for consumers in Ohio. A tax on advertising would hurt Ohio consumers because businesses will pass along the increased cost of doing business when they can.3 This is especially concerning since Ohioans area already struggling with the difficult economy. However, it is likely that Ohio businesses will have to absorb the added costs.
A tax on advertising is vulnerable to constitutional challenges. Advertising falls into the category of commercial speech, which is protected by the First Amendment of the U.S. Constitution. While protection is not absolute, some legal experts believe that a special tax levied on any one industry engaging in First Amendment activities is unconstitutional. In addition to satisfying First Amendment requirements, a tax on advertising must withstand challenges under the Commerce Clause as the imposition of a tax on advertising may interfere with interstate commerce.
A tax on advertising is bad for businesses, consumers, and Ohio.
Governor John Kasich’s FY 2014-2015 state biennial budget proposal was introduced in the Ohio House of Representatives on February 12, 2013. As part of House Bill 59, the Ohio General Assembly must deliberate on several significant tax reforms proposed by the Governor, including a broad expansion of Ohio’s sales and use tax. Under the current proposal, advertising services would be subject to taxation.
Expanding Ohio’s sales and use tax to advertising will have a devastating impact on Ohio’s communications businesses and the 783,021 jobs supported by advertising-related industries. It will also have a negative ripple effect on Ohio’s overall economy.
Therefore, the Ohio Advertising Tax Coalition strongly opposes expansion of the state sales tax to include advertising and a broad range of other business services.
The advertising industry contributes significantly to Ohio’s tax base. The industry expects to pay its fair share to support government. We ask only to be taxed in ways that are economically sound and reasonable to administer. Thank you in advance for visiting this site and considering the many reasons why an ad tax is a bad idea for Ohio.
Not a single state in the country applies a sales tax to advertising.1
1The Economic Impact of Advertising Expenditures in the United States (August, 2010). Nobel-prize winning economist, Dr. Lawrence R. Klein & IHS Global Insight
2 The Lexecon Study (1990). Nobel Laureates Dr. Kenneth Arrow & Dr. George Stigler