What is the Ad Tax?
As it stands now, every dollar a company spends on advertising, both traditional and digital, is 100% deductible just like other expenses related to the cost of doing business, such as rent and computers. Businesses depend on advertising as an essential pillar of their operations, and it has been tax deductible for over 100 years. But all that could change.
In the last few years, various legislators have proposed taking away businesses’ advertising deduction as a means of raising revenue. Essentially, that’s a tax on advertising. Industry groups and a bipartisan group of legislators have pushed back, arguing an ad tax would hurt businesses at the heart of American communities, as well as local media such as newspapers, radio and television.
What’s the story behind the ad tax?
For several years now, Congress has been exploring ways to raise more revenue through tax reform. Draft proposals introduced in 2013 by former Senate Finance Committee Chairman Max Baucus (D-Mont.) and in 2014 by former House Ways and Means Committee Chair Rep. Dave Camp (R–Mich.) would cut the advertising deduction by 50%, with the rest amortized over 10 years.
Both the House Ways and Means Committee and the Senate Finance Committee are currently holding hearings on tax reform. The hunt for revenue is still on.
What do businesses stand to lose?
If a company has a $500,000 ad budget, for example, and the ad tax proposal is passed, the business will have to pay tax on $250,000 more of their net income. That’s a lot of profit going into the government’s pocket. Less money in the hands of businesses would hurt their ability to hire employees and invest in growth.
What does Congress think can be gained from an ad tax?
Congress believes the ad tax would net them a cash crop of $169 billion over the next several years.
Most of that will come from small and medium-sized businesses, since big corporations can advocate for other changes to the tax code to offset the impact on their taxes. The little guys can’t. Don’t stand by and let Congress take a bite out of your business.
Join the BAAd Tax coalition today and stand strong against an ad tax.