Guest Commentary: SDNA’s Bordewyk – An ad tax is a bad tax

There they go again. Business special interests riding roughshod over legislators looking to repeal various sales tax exemptions and raise revenue for state government. And why aren't the media paying their fair share of taxes? Why should they get special treatment by not paying a sales tax on advertising in South Dakota?

Those were among the comments and questions I heard following the recent work of the interim legislative committee that studied the state's various sales tax exemptions. Everything from reimbursable expenses for funeral services to repairs on agricultural machinery and equipment. Dozens of exemptions. And yes, advertising.

I didn't envy the legislative committee members and the task they faced. They should be commended. Legislators devoted three days to reviewing various exemptions, hearing testimony and debating what to do. In the end, I believe they learned that there are legitimate, rational reasons why many of the exemptions to the sales tax exist in our state's laws.

As for advertising, the plain and simple argument why the exemption exists is because taxing advertising would be like continuously pumping the brakes on our economy. Particularly in these times when our economy already struggles to move forward.

A tax on advertising increases the cost of advertising. Because most businesses operate on a fixed advertising budget, they would need to compensate for this new tax by decreasing their advertising spending. This would have a direct � and negative � impact on the economy and sales tax revenues.

Advertising helps fuel our economy. Less advertising means fewer sales for a business. Fewer sales mean reduced revenue and fewer jobs. Fewer sales also result in less sales tax revenue for the state.

I would argue that an advertising tax would be self-defeating in that it would cause the state to lose more in sales tax revenue because of decreased sales than the ad tax itself would ever raise.

Not one state in the United States applies a tax directly to advertising sales transactions as would be done if the South Dakota exemption were repealed. Other states have tried taxing advertising and later repealed it, quickly learning the harm it caused their economy as well as the high costs associated with trying to administer the tax.

As for the question why aren't the news media paying their fair share, the truth is that it's Main Street and ultimately consumers who would pay this tax. It's anyone and everyone within the state's borders wanting to promote and market a product or service who would pay the tax. It's the grocery store. It's the implement dealer. It's the kid wanting to mow lawns who buys a classified ad in the local paper. All would pay this new tax.

And it would be a new tax. Don't buy into the argument that repealing an exemption such as the one for advertising is merely applying an existing tax (sales tax) to an existing service or product. Yeah, right. Try telling that to the person who now sees a quick four, five or six percent tax added to his advertising bill when last month's bill didn't include any tax.

Advertising has never been taxed in South Dakota because through the years as legislators have looked at the issue, they learned what Main Street South Dakota already knows: a tax on advertising would harm our economy, would be a nightmarishly expensive to define and collect, and would put our state at an extremely competitive disadvantage.

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