Well, not exactly. On second thought, the headline is pretty accurate. Read on:
According to this Federal Trade Commission (FTC) Staff Discussion Draft, entitled “Potential Policy Recommendations to Support the Reinvention of Journalism“, one way that the feds may involve themselves in the resuscitation of the traditional news outlets. (btw, that’s code for newspapers and local TV).
And if you still get all your news from newspapers and local TV, “btw” stands for ”GET OUT OF THE EIGHTIES… NOW!”.
OK, back to the story. The entire document is an amazing set of plans to save a private industry by government intervention. For our purposes, see page 21 for a tax on the advertising that you see on your i-phone, PC, Blackberry, Commodore 64…
“Advertising Taxes: They note a considerable amount of our broadcast spectrum has been turned over to disseminating commercial advertisements, and a 2 percent sales tax on advertising would generate approximately $5 to $6 billion annually. In addition, they suggest that changing the tax write-off of all advertising as a business expense in a single year to a write-off over a 5-year period would generate an additional $2 billion per year.”
Wow. Well, first, this will send our friends in the advertising business through the roof, no doubt. Next, we won’t touch the proposal to amortize advertising expenses over five years, which itself represents a major shift in generally accepted accounting principals. We focus on the sales tax proposed for advertising delivered via broadband. It is a sales tax compliance blog, right? (that accounting undergrad comes in handy once in a while, like when I get to use the word ‘amortize‘ or “generally accepted accounting principles“.)
This type of proposal signifies the expanding universe of sales and other excise taxes. Sales taxes now apply to an array of services and heretofore untaxed commodities like advertising. Excise taxes on the services provided by telecommunications firms have been around a long time, but taxes on the advertising that those carriers deliver is something new and not-so-subtly different.
Obviously, most vendors do not sell advertising, so the sales tax compliance headaches that an additional federal excise tax on ads themselves doesn’t really impact their day-to-day operations. However, it has been our experience that most vendors are consumers of advertising, you know, they spend money on it. And it is not like there is a resale exemption for banner ads! If this type of proposal becomes law, it will cost everyone who advertises more money. And the bottom line of that income statement impacts all business owners, everyday, all day, forever.
This proposal got us thinking about state sales taxes on advertising: what is the general approach of states to the taxability of advertising, especially on the inter-tubes? We’ll leave the details up to folks who have a horse in that race, see the Performance Marketing Association’s webpage on current attempts to include advertising services within the sales tax net.
The take away? Vendors of all kinds of services and commodities must prepare themselves for more and more complexity related to sales tax compliance as the list of items touched by sales taxes grows wider and longer month by month.
