The effort to pass a tax on advertising services in Washington, DC has come up short after the lead backer on the D.C. City Council removed the proposed tax from the city’s fiscal 2021 budget. The proposal, if passed, would have added a 3% tax on the sale of all advertising. Proponents say the tax would have raised an estimated $19 million next year. But after the pushback from broadcasters, media outlets, and the spectrum of businesses that buy ads, City Council Chairman Phil Mendelson scrapped the idea saying the city had enough money left over from the current fiscal year to eliminate the need for an ad tax in 2021.
Mendelson said he now “regrets” proposing the new ad tax, but not for a belief that taxing advertising services is a bad idea. “I overestimated the effect my proposing this tax would have to discourage colleagues’ desire to raise other taxes,” he said. “At issue, fundamentally, is whether our Council will succumb to dubious demands to tax-and-spend.” He made no mention of the pushback from the business community as the Council looks to finalize the $8.6 billion spending plan.
The announcement came blocks away from the National Association of Broadcasters’ headquarters. The NAB, like most of media and advertising trade groups, was actively lobbying against the proposed ad tax. NAB President Gordon Smith called it a “major win” for local media, advertisers, consumers, and commerce.
“The outpouring of opposition expressed by local media companies and citizens in D.C. and across the nation effectively defeated the tax, which would have placed an undue burden on small businesses and local media already struggling amidst the pandemic,” said Smith. “This should serve as an example for other local governments that such misguided taxes on advertising are counterproductive in stimulating local economies and will continue to be met with fervent opposition.”
As the COVID-19 pandemic has cut the financial legs out of state budgets coast to coast, critics of the ad tax worry that the fight that just played out in D.C. will occur in more statehouses. Already four states, including South Dakota, New York, Nebraska, and Maryland have this year considered changing the current tax-exempt status for advertising. So far, none of the proposals have been approved.