US advertising costs: Taxation threatens prices

Nov 18, 2013 | Online advertising, Regulation, USA

Internet advertising costs could leap if the US Congress discussions about taxing advertising proceed, affecting web advertising. The US lobbying industry is tooling up in response as internet advertising regulation and taxes inevitably will impact revenues to media owners. According to an email sent from Clark Rector, exec VP-government affairs for the American Advertising federation, […]

Internet advertising costs could leap if the US Congress discussions about taxing advertising proceed, affecting web advertising. The US lobbying industry is tooling up in response as internet advertising regulation and taxes inevitably will impact revenues to media owners.


According to an email sent from Clark Rector, exec VP-government affairs for the American Advertising federation, the House Ways and Means Committee is considering a proposal that would dramatically curb the expense of advertising costs for tax purposes.
And, he added, “credible sources within the House Ways and Means Committee” have confirmed that the changes “could be even worse than we feared.”
According to Rector’s sources, the plan under consideration would require 50% of all advertising costs to be amortized over 10 years, and the remaining 50% deducted in the first year of the amortization schedule.
Republicans have said they want to simplify the tax code and make it more “fair” by closing loopholes and lowering rates for corporations and high-income earners. Democrats also want an overhaul, but they want to change the tax code to raise more revenues.
The economic consulting firm IHS Global Insight estimates this could place 1.7 million U.S. jobs at risk. Today, advertising sales help support 20 million jobs, or 15% of all jobs in the country.
The impact of having advertising re-classified (in whole or in part) as a taxable business activity is that client advertisers will do less of it. Any tax percentage assessed will incline companies to reduce advertising and media spending in order to mitigate or off-set any tax.
This impacts ad agencies directly –and can adversely affect entire local economies and job bases where agencies and advertising-related businesses play such an important role.

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