Direct Marketers Could Be Hit Hardest by Baucus Ad Tax Proposal

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Baucus: Advertisers must pay.
Baucus: Advertisers must pay.

Sen. Max Baucus (D-MT) yesterday introduced a discussion draft on business tax reform that could hamstring the budgets of advertisers and, especially, direct marketers. The proposed legislation includes a provision that would allow marketers to deduct only 50% of advertising-related expenditures in the first year and amortize the rest over the next five years.

“Any restriction on advertising deduction hits remote sellers harder than other businesses,” says Jerry Cerasale, SVP of government affairs for the Direct Marketing Association. “Advertising for a catalog, for example, is its storefront, its shelving and product placement. The same holds true for e-coms.  DMA will work to keep advertising business expense deductable.”

President of the American Catalog Mailers Association Hamilton Davison is likewise concerned. "This is a terrible idea that would indeed hurt cataloging," he says. "Unless and until we form a loud and strong presence in Washington as an industry, we can look forward to a steady stream of antibusiness proposals that we need to attack."

Baucus, the Senate Finance committee chairman, believes that the nation's tax code, last updated in 1986, has resulted in disparities between different types of business that “unfairly encourage investment in one industry over another,” according to the draft.  Apparently, Baucus sees the marketing industry on the favorable end of the imbalance.

“Senator Baucus's draft proposal seriously undermines the deduction for advertising expenses and would have a profound impact on the advertising industry and the economy more broadly,” said Bob Liodice, president and CEO of the Association of National Advertisers, in a statement. “Changes to the way advertising deductions currently are treated would greatly affect sales and employment across all levels and sectors. This is essentially a major new tax liability which would increase the cost of advertising and cause a substantial disincentive for companies to spend additional advertising dollars.”

Interested parties are free to provide feedback to the Senate Finance Committee until  January 17. Comments should be sent to Tax_Reform@Finance.Senate.gov.

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