Tax on Advertising? Why you should care! And what you should do about it.
Tax on advertising? “There’s no tax on advertising” you say!
Well there may soon be, and if you run a business or even have a job, you should be very concerned. Read the proposed bill, MCG13833 Page 104-107.
What is the Story?
For 100 years the Tax Code has rightly permitted businesses to deduct the full cost of their advertising expenses, just as it permits the deduction of other business costs like salaries, rent, utilities and office supplies. It is not a special preference or deduction. It is a normal and necessary expense that a business must pay to communicate with customers and generate sales. You can read more about the story on “AdAge.”
The Coming Storm
You should be concerned with both sides of congress, and both parties, because there are two bills being written that would only allow 50% of advertising expenses to be deducted in the current year, with the remaining 50% amortized over the following 5 years.
- Senator Max Baucus, D-Mont., Chairman of the Senate Finance Committee releaseddraft tax reform legislation that takes direct aim at advertising (section 23, page 104).
- House Ways and Means Committee Chairman Dave Camp, R-Mich. is continuing in his attempt to draft major tax reform legislation.
There is a fundamentally wrong idea behind this proposal, the misconception is that advertising builds “brand,” and that “brand value” is a tangible asset. But brand value can’t be quantified, calculated or written down on your balance sheet as an asset. Thus, the government is proposing that if you advertise one time on the radio or on TV, that the value of the advertisement last for years. Just advertise one time? That does not make for good business or good government.
Who will be Affected?
When you read the draft bill, you will see that every activity, media, and output would be taxed, both internal and external costs. Thus, all businesses would be affected.
In the bill the following definitions are made:
- The term ‘advertising expenditures’ means any expenditure (whether made internally or externally) paid or incurred for the development, creation, or placement of advertising, or for any similar activity with respect to advertising.
- The term ‘advertising’ means any message or other programming material which is broadcast or otherwise transmitted, published, displayed, or distributed, and which promotes or markets any trade or business, service, facility, or product.
The Aftermath – Businesses Would be Dramatically Affected.
- Advertising – local, regional and national – generates $5.6 trillion in total economic activity for our country and helps support 22.1 million, or 15% of all jobs in the U.S. economy.
- Making advertising more expensive would only cause a decline in ad spending and cost jobs, since every $1 spent on advertising leads to $20 in economic activity.
- The proposal also does not consider that companies buy new advertising each year and would feel the brunt of this write off of expenses annually.
- Cash flow restrictions caused by paying taxes on advertising costs.
- Accounting headaches of tracking new regulations
Why is This so Crazy?
Government is increasingly detached from business, and this bill is another poorly crafted reform meant to raise money. But in fact, it would shrink business and the economy. From the idea that “Advertising is a big pot of money to tax” to the fundamental change of an expense to a depreciable asset, this is not a solution to raising more government revenues.
Would you like to pay $5.00 to an employee to send a Tweet out to the world about your business, and then only get to deduct $2.50 as an expense, and the then get to deduct $0.50 per year for 5 years? That is simply ridiculous to do. But that is what this accounting and cash flow nightmare would truly look like regardless of their service or product.
What to Do?
It’s simple. All business owners and employees have a stake in this issue. All organizations that are involved in marketing, public relations and even social media should act!
The sooner you act, the better chance this provision will be removed from the bills before they are formally introduced to the floors of the House and the Senate.
- Contact your congressional representative. http://house.gov/representatives/
House Ways and Means Committee members http://waysandmeans.house.gov/about/members.htm
- Contact both of your senators.http://www.senate.gov/general/contact_information/senators_cfm.cfm
Members of the Senate Committee on Financehttp://www.finance.senate.gov/about/membership/
What to Say?
- “Preserve the current standard business deduction for the cost of advertising.”
- Any tax on advertising would be devastating not just to the advertising industry, but to the national economy as well.
- I do NOT support a tax on advertising.
Spread the Word.
Tell other businesses, your local chambers of commerce, your sister organizations like;American Advertising Federation, American Marketing Association, Public Relations Society of America, American Association of Advertising Agencies.
Read the whole bill MCG13833 Pages 104-107.
Story by Jon Burgess, MBA
Marketing for more than a decade and a half, Jon focuses on helping companies find value, tell their story, and building positive relationships between companies and customers. Jon sits on the American Advertising Federation National Board as the District 15 Governor (Southern California and Southern Nevada). Jon is an instructor at the University of Redlands and he also speakes regularly on integrated marketing, advertising and social media.