Several weeks ago, I was talking with Sam Stern, co-owner of CAP Advertising, about the state of the Sarasota advertising marketplace and he mentioned the growing consideration in Tallahassee about instituting a tax on advertising. I immediately thought that I was being transported with Doc Brown in a DeLorean, equipped with a flux capacitor, back to 1987.
Florida actually passed an advertising tax that lasted from July 1, 1987 until that Dec. 1. It was quickly repealed. It was a disaster for the state. I know because I worked hard to kill it. At the time, I was in charge of about $20 billion of U.S. advertising expenditures.
What we did was curtail all our expenditures in Florida. We stopped supporting the local media with our national advertising dollars. We delayed all support for local dealers and franchisees. We eliminated everything we could, and most of the entire industry did the same.
According to the Association of National Advertisers (ANA), national spot-TV advertising in six major Florida markets declined in 1987 by almost 12 percent. Further, a study commissioned by several leading advertising association groups and conducted by The Wharton School of the University of Pennsylvania, found there was significant loss in consumer confidence, a curtailment in consumer spending, and a significant loss of jobs as a direct result of the tax. Changing today’s tax treatment of advertising, from the cost of doing business to being taxed as a commodity, would increase rather than abate the current state budget crisis.
In 1987 the world was a lot simpler. We did not have Web sites and Internet communication. There was no such thing as e-commerce. Nobody could imagine social network sites, and all the other new forms of marketing.
As a businessperson, how would you like to see all that support for our local media disappear? Local newspapers are already suffering from the downturn in the real estate and retail markets. They would either fold or become mere shells of their former selves.
It seems inconceivable that we would have to pay a tax on our Web sites, podcasts or blogs. But it is possible depending on how legislation is written.
Currently we have a very vibrant magazine community. I would venture to say that we could lose 50 percent of our local magazines because they could not withstand the loss of advertising revenue and the increases in their costs. I used to custom-publish over 40 custom magazines so I fully understand their tight economics.
Guess what would happen to all that pro-bono media support for the community? How much free advertising support for all of Sarasota’s charities could continue? I could hazard a good guess: zero. Pro-bono is already a huge drain on the media’s bottom line, and, let’s face it, survival is the first rule for business, isn’t it? So goodbye to good deeds.
How would you like to see your business expenses skyrocket? Think what a 5 percent tax (the rate in 1987), on every communication you create would do to your bottom line. What do you cut out? Can you pass the cost onto the consumer? I doubt it.
Let us look at some local businesses. The real estate market is already in a recession. With an added tax burden, many brokers will not be able to afford to advertise, which means fewer houses will be promoted, fewer houses will be sold, and the downward spiral is exacerbated. That becomes a negative impact on the entire Sarasota economy.
Many small businesses operate on thin margins. Most restaurants do; I know from experience. So do clothing and trendy boutiques and all those interesting little stores that create the Sarasota character. Who is going to start up a new business?
History has shown that consumers depend on advertising when they make their purchasing decisions because they can differentiate among products and services. Advertising is a lubricant that helps drive not only the economic engine of the country, but most assuredly the Sarasota market. It helps generate sales.
It also provides free information. Look how many people rely on Google, and it is free because it is advertising supported.
Perhaps a tax would produce one good result. Maybe we would see a diminution of all those awful political ads that insult our intelligence and clutter our media. But then again, knowing politicians, they would probably exempt themselves from the tax. Maybe we should send old Doc Brown to Tallahassee and see if he can take some of the politicos back to the future. And out of our wallets. Either that or we can vote the fools out of office. In the meantime, stay vigilant. The tax man commeth!
Lou Schultz owns LMS-Unlimited LLC, a full-service communications consultancy, and Canvas Café Leysin in downtown Sarasota. Formerly, he was CEO of Initiative Media, a $23 billion global media services company. His awards include Mediaweek’s Director of the Year and Advertising Age’s “Top 15 Agency Innovators.” Contact him at [email protected]