Grassroots Lobbying Kit

Position Paper: Taxing Newspapers Would Harm Iowa’s Economy

Currently, advertising and newspaper circulation are exempt from the state sales tax. It’s becoming increasingly clear that Iowa politicians may be tempted to eliminate some of the exemptions to the sales tax yet this year. They could claim that they passed no “new taxes” since the sales tax is not a new tax. Instead, they could argue they just made the tax “fairer” by subjecting more products and services to the tax.

A tax on advertising would be both poor public policy and poor economics. It would result in FEWER dollars in the state treasury.

Iowa and other states have learned it’s a scheme that simply doesn’t work:

Arizona, Iowa and Florida each passed a tax on advertising… and repealed the taxes because they hurt their respective economies and were impossible to administer. During Florida’s six-month ad tax experiment, its department of revenue processed 12 million magazine advertising transactions, the administrative cost of which exceeded the tax collections. Since 1987 (when the Florida services tax was repealed), advertising taxes have been considered in 40 states and rejected in each case.

An advertising tax is economically unsound:

Nobel Laureates Dr. Kenneth Arrow and the late Dr. George Stigler noted in their 1990 Lexicon Study that advertising is the most economically efficient means of marketing a product or service. Advertising promotes the entry of new firms and products in the marketplace and promotes lower prices. Studies by the Wharton Econometrics Forecasting Associates show that a tax on advertising would slow economic growth because when the cost of advertising goes up, there is less advertising (which leads to less consumer demand). This slows the economy in general. Either way, an advertising tax is a self-defeating source of revenue to the government.

Other states have learned that defining what “Advertising” to tax is impossible:

State Government and businesses would need an army of accountants and lawyers to administer the tax. Some of their questions: does taxable advertising include business cards? Sales calls? Grocery receipts? Telephone calls? Websites? E-mails? Faxes? Logos on clothing? High School Yearbooks? Storefront signs? Sports arenas? Racecars? Napkins? Ads for tax-exempt merchandise? Convention booths? Would in-flight magazine ads on planes flying into Iowa be taxed? What about advertising prepared in Iowa but run only in other states?

An advertising tax is a clear anti-business signal:

A tax on advertising would send a very strong anti-business signal to firms which are considering locating operations in the state. Advertising dollars that are currently spent in the state would be shifted to media outlets outside of the state.

An ad tax would reduce the amount of information and entertainment available to the public:

Advertising is vital to the dissemination of most of the news, information and entertainment in our society. Newspapers, which depend heavily on advertising revenues, would be harmed and placed at a competitive disadvantage with media that benefit primarily from other sources of revenue.

A tax on advertising creates a new layer of hidden taxes:

This is multiple taxation. Advertising is not an end product, such as a bar of soap, which is already subject to the state sales tax. Since a large portion of any tax on a business is generally passed on to the consumer, families would end up paying a “double sales tax” for most products and services.

An advertising tax would significantly hurt Iowa’s small businesses:

From drug stores to supermarkets and auto dealers, cooperative advertising is a cornerstone of their marketing efforts. A state sales tax on advertising could seriously threaten these agreements. National firms, in an attempt to use their limited cooperative advertising budgets, would likely shift these dollars to states that do not diminish their selling impact through advertising taxes.

An advertising tax would really be a tax on economic development. Please ask your area legislators to reject any attempts to hurt Iowa’s economy with a tax on advertising.

A tax on circulation or newspaper subscriptions is a bad idea whose time should never come. Such a tax would essentially be a levy on the free flow of information in our society, and is therefore contrary to the public interest.

A circulation tax would be discriminatory:

To require newspapers to pay a tax for distribution of their product would also be discriminatory since radio, television, direct mail and free newspapers would not be subject to the tax.

Administration of the tax would be a nightmare:

Additionally, the revenue raised by a tax on circulation would be relatively small compared with total state revenues, and it would create an administrative nightmare. It would, for example, require thousands of newspaper carriers, including young boys and girls, to become state tax collectors with the attendant sales accounting and reporting responsibilities.

A substantial portion of many daily newspapers' circulation is based on newsbox sales. It would be difficult, if not impossible, to adjust coin boxes to collect the tax. Consequently, newspapers would have to "eat" the tax.

A circulation tax would hurt Iowa’s economy:

Furthermore, adding to the cost of a newspaper would discourage maintaining and extending newspaper circulation. That could hurt the overall economy by diminishing distribution of advertising.

In particular, fewer newspapers in circulation would hurt retail merchants who rely heavily on newspapers to get their messages out to potential customers.

A newspaper exemption to the sales tax is justified:

In 1990, the Iowa Supreme Court ruled an exemption in Iowa was justified. Among other reasons, the court said the newspaper exemption is justified since local newspapers were the only source for detailed local news and those newspapers served the citizenry by providing information and enhancing the literacy of the population

Thirty-six states currently exempt circulation from sales taxes. Iowa should remain among them.

Please tell your area legislators that no attempt should be made to balance the state budget by making it more expensive for taxpayers to have access to the critical information that is published in your newspaper.