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Ad Tax Fight Returns To Connecticut With Fresh Effort To Collect Tax On Digital Ads.

A coalition of advertising and media organizations, including the National Association of Broadcasters, is voicing its “strong opposition” to a proposed digital advertising tax on businesses operating in Connecticut. If passed, it would become the second state in the U.S. to adopt a tax on digital advertising, following approval of a similar tax in Maryland two years ago.

The bill introduced in Connecticut (HB 5673) would create a ten percent tax on the annual gross revenues derived from digital advertising services for any business with annual worldwide gross revenues exceeding $10 billion. Supporters estimate the new tax could mean as much as $250 million a year for the state treasury. The proceeds of the digital ad tax would be used to cut income taxes paid by residents.

But the coalition, which includes groups like the Association of National Advertisers, American Association of Advertising Agencies, Interactive Advertising Bureau, and the New York State Broadcasters Association, says digital advertising is a “powerful engine” that drives Connecticut’s economy. They say it accounts for $110 million of economic activity in the state, with more than 349,000 jobs tied to the sector, based on IHS Markit research released by the ANA in November 2021.

“The proposed tax on digital advertising would represent one of the most serious threats to commercial advertising in the U.S. in several decades,” the coalition said in written testimony to Connecticut lawmakers this week. The group said that if the digital ad tax becomes law, because of the threshold used, it would tend to tax larger, out-of-state advertising service providers at a higher tax rate than their Connecticut counterparts -- and that could open the door to constitutional challenges. Maryland’s digital tax is already being challenged on those legal grounds.

The Connecticut Broadcasters Association helped sideline a similar proposal that was first floated in 2021. CBA President Mike Ryan is again urging his state’s legislators to reject the idea, calling it “potentially problematic” to the state’s broadcasters. Not only are the targeted “digital advertising services” broadly defined in the bill, but Ryan says that several Connecticut broadcasters are part of large companies which may have more than $10 billion in revenue. In written testimony to the state legislature this week, Ryan explained stations are still recovering from the blow of the pandemic and any incremental tax would be a “drain on resources” and could impact locally-focused programming and lead to layoffs.

“Perhaps the broadcasting industry is not the intended focus,” Ryan said. “If not, we respectfully request that broadcasters be exempted from it.”

Connecticut broadcasters likely have what happened in Florida three decades ago in mind. Before Florida passed and repealed its ad tax in 1987 it is estimated the state’s radio and television stations lost 45% of their previous billings as marketers shifted buys across state lines.

Backers of the bill are positioning the creation of the digital advertising tax as a reform measure, with the benefits directed toward middle-income taxpayers and seniors. And while much of the testimony at this week’s hearing was opposed to the idea, several education groups and worker unions spoke out in favor. Many cited statistics that show Connecticut has one of the largest wealth gaps in the country.

But the coalition of media and advertising groups says that although the anticipated revenues from the tax may “seem popular” initially, it predicted the “real burden” of the new tax would fall on Connecticut residents and businesses that buy and consume digital advertising. That is because providers of those ads can be expected to pass the tax onto their customers, including Connecticut brick and mortar businesses that seek to reach new customers online.

“While we respect the bill’s stated purpose to reduce taxes for Connecticut’s middle-income taxpayers and seniors, we believe the proposed tax on digital advertising revenues will impose a massive long-term burden on the present and future taxpayers of the state,” the coalition said.

For now, the bill remains pending in the Connecticut House Joint Committee on Finance, Revenue and Bonding. No companion bill has been introduced in the Senate.

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