Tax Deductibility of Advertising

Advertising has long been the foundational core of our nation's free local broadcast system.  And stations still rely primarily on advertising as their primary source of revenue.  Any changes to the tax laws that may force a drop in advertising revenues would necessarily threaten the viability of Virginia's local radio and television stations to invest in the very local programming - including local news, public affairs and emergency information - that is so important to local communities. 

Advertising also is a proven job-creator throughout Virginia's economy.  It triggers both direct and indirect economic impacts through increased demands for products and services generated by advertising which, in turn, triggers increases in consumer spending.   

Currently, businesses can deduct the full costs advertising as an ordinary and necessary business expense.  Some in Congress have discussed proposals that would modify or eliminate the deductibility of advertising.  As an example, one proposal would have amortized the deduction to allow a 50 percent deduction in the first year the advertising is purchased and allow the remainder to be deducted during the next 5 or 10 years.  This proposal would have a severe negative impact on advertising spends, and could create a significant revenue shortfall for local stations. 

With Republicans controlling both the White House and Congress, there is the potential for overall tax reform that lowers corporate and/or individual tax rates.  But those reductions would need to be offset by new tax revenues.  That means broadcasters must protect against possible attempts to change the tax deductibility of advertising as a means to pay for those deductions.

The key tax-writing committees are the House Ways and Means Committee and the Senate Finance Committee.  SenatorMark Warner(D-VA) serves on the Senate Finance Committee. 

In 2015, a bipartisan group of 87 Members of the House of Representatives signed onto a letter to the Speaker and Minority Leader opposing any changes to the current deductibility of advertising.  CongressmanMorgan Griffith(R-9th) signed on to the letter.    

What You Can Do.  You'll find issue papers, statistics, a letter from all 50 state broadcast associations, and a letter from 87 Members of Congress expressing opposition to any changes to the deductibility of advertising.  Use these and other resources as a guide to lobbying members of the Virginia Congressional delegation. 

 

QUICK FACTS - TAX DEDUCTIBILITY OF ADVERTISING

As Congress looks towards possible tax reform, it should avoid any proposal to limit or eliminate the ability of businesses to deduct the full cost of advertising in the year it is purchased.  The impact of any such proposal could slow the economy and job growth and also harm the ability of Virginia broadcasters to deliver high-quality local news, weather, emergency, and public affairs programming to local communities throughout the State.

 

What is the Current Tax Treatment of Advertising? 

  • For almost 100 years, businesses have been able to deduct the cost of advertising as an "ordinary and necessary" business expense under the same longstanding fundamental tax principles that apply to other ordinary and necessary business expenses, such as wages, rent, utilities, and business supplies. 

 

How Does the Sale Of Advertising Grow the Economy and Create Jobs?

  • Every dollar spent on advertising generates approximately $19 in economic activity through a ripple effect that includes direct sales of advertised goods and services, indirect sales as dollars are spent to manufacture and supply those goods and services, and additional spending as employees of the companies and suppliers that produce the advertised goods and services spend their wages.
  • In 2014, each million dollars of ad spending supported 76 jobs in Virginia, and more than 14% of Virginia's employment is attributable to advertising activities and related sales.

 

How Would Changing or Eliminating the Advertising Deduction Impact Virginia Radio and Television Stations?

  • A 2015 economic study reports that Virginia stations produce a direct economic impact of approximately $1.4 billion of gross domestic product and 8,000 jobs. Advertising accounts for approximately 90 percent of radio and TV station revenues, and stations reinvest this money to fund programming of interest to their local communities-including local news and public affairs, severe weather coverage, investigative reporting, and local sporting events. 

 

What Happened During the Last Congress?

  • Previous proposals would have significantly limited the advertising deduction by allowing businesses to deduct only 50% of advertising costs in the year the advertising is purchased and to amortize the balance over 5 or 10 years. 
  • In 2015, a bipartisan group of 87 Members of the House of Representatives signed onto a letter to the House Speaker and Minority Leader opposing any changes to the current deductibility of advertising. 

 

It is critical that Congress not disrupt the longstanding tax treatment of advertising-doing so would be bad for the economy, bad for Virginia radio and televisions stations, and ultimately bad for the local communities that they serve.

 

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