Grassroots Lobbying Kit

Editorial: A Sales Tax on Advertising: A Bad Idea for Iowa

Broadening the sales tax to include advertising services would be a mistake. It would have a huge negative affect on the Iowa economy.

A sales tax on advertising would slow economic growth – Expanding the sales tax to advertising would make the state more reliant on the sales tax but would put a ‘governor’ on the state’s economic engine. When the cost of advertising goes up, there is less advertising, which leads to less consumer demand. Lower consumer demand reduces revenue, creates fewer jobs, slows the economy and reduces its usefulness as a revenue source.

Advertising expenditures have a huge impact on the Iowa economy – Recent studies by Global Insight show that a tax on advertising reduces local employment and personal income by substantial amounts. According to the research, advertising is an economic force that helps generate $56 billion in total economic activity in Iowa. Sales of products and services generated by advertising help support 227,786 Iowa jobs.

A sales tax on advertising would hurt Iowa companies competitively -- Advertising dollars that are currently spent in Iowa would be shifted to media agencies outside the state. Iowa advertising firms would be at a competitive disadvantage when trying to get national contracts.

A sales tax on advertising has been tried unsuccessfully in other states -- Since 1987, when the state of Florida repealed its advertising sales tax, 40 states have considered and rejected such a tax. Florida’s experience is instructive -- after an outcry from advertising firms, the media, and the tourism industry when advertising fell by 12 percent, the tax was repealed in a special session. The political fallout was extensive.

A sales tax on advertising is too complex and expensive to administer -- This tax would result in a huge collection and administration headache for the state. Advertising is a very complex field, involving millions of ads placed with newspapers, television, radio, and magazines. State government and businesses would both have to hire additional lawyers and accountants to administer this tax.