City considers bringing back tax on advertising

As city leaders try to find ways to fill a $25 million budget hole, one revenue proposal to come up has been reinstituting a tax on advertising.

But the discussion has brought up issues of tax equity, fairness and logistical questions about how to collect it.

“There’s a variety of reasons why it’s not a good idea,” said Ed Ackerley of Ackerley Advertising.

Among those, Ackerley said, a tax could discourage advertising and damage businesses.

“Advertising is the fuel of the free-enterprise system,” he said.

Ackerley used the analogy of pouring water onto a pile of charcoal in a grill then attempting to light those coals to have a barbecue.

“It defeats the purpose of what you are trying to do, which is generate sales taxes,” he said.

City Finance Director Joyce Garland provided a written description of how an advertising tax could be administered in the city.

In general, advertising would be taxed at 2 percent. City officials estimate the tax could generate $1 million annually. The estimates are based on the city’s past history with the tax, which was in place until 1991.

“Advertising tax is due by the business engaging in the business of ‘local advertising’ by billboards, direct mail, radio, television, or by any other means,” Garland wrote.

The tax would be assessed to businesses operating within the city limits.

Tucson City Councilman Steve Kozachik said that brings up tax equity issues.

“It directly and specifically targets our local businesses, places a new bureaucratic reporting burden on them and taxes the engine we need to get to a healthy generator of sales tax revenue,” Kozachik said.

He also questioned how a tax would be charged.

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For instance, what if a national chain restaurant bought advertising on a television station operating within the city limits?

Documents Garland provided explained a generalized advertisement for a national restaurant would not be taxed, but if it specified a location within the city it’s advertisement would be taxable.

Ackerley said such a system would penalize local business by forcing them to pay a tax that’s not charged in neighboring towns or forcing them to buy advertising with companies outside of the city limits.

In some instances, he added, a media company selling advertisements could be reaching the same audience as a company operating within the city limits.

“The burden falls on the small-business person working in the community,” he said.

Another potential issue Ackerley sees with the proposal is a conflict with First Amendment protections.

Ackerley said such a tax would put the government in a position if taxing protected expression.

All of these concerns could be premature, according Tucson City Councilman Paul Cunningham.

“It’s not going forward,” Cunningham said.

Rather than industry-specific new sales taxes, Cunningham said the council should look toward larger reforms in how it generates taxes and spends money.

“We’re going to put it on the ballot and ask what kind of city people want,” he said.

Specifically, Cunningham said he wants voters to get the chance to vote on a sales tax that would specify exactly where the money gets spent — for police, parks, roads or other needs.

“Talking about an advertising tax,” he said, “is a waste of time.”