Editorial: Legislators should reject Dayton’s plan to tax ads

Published 9:09 am Wednesday, February 27, 2013

No state in the union taxes advertising. It’s too difficult to determine what is advertising and what isn’t. The two states that have enacted such a law quickly repealed it. Forty states considered it, but they decided it couldn’t be done.

So why is Gov. Mark Dayton foolish enough to propose it?

Soliciting advertising is the primary means for media outlets to stay in business, whether they are newspapers, radio and television stations, billboards, websites or magazines. But advertising — the transaction of money in exchange for publicity — happens in many other places. School yearbooks solicit advertising. Receipts at the grocery store have advertising. Outfield fences at ballparks have advertising. Even Little League uniforms advertise the sponsors. Logos on clothing are forms of advertising. The sign on top of a pizza delivery car is advertising. The previews in a movie theater are advertisements. Commercial speech is everywhere. And would the state be able to collect it all, whether they are newspapers, Little League teams or far-away media outlets that show ads in our state, such as Connecticut-based ESPN, Atlanta-based CNN, Hollywood-based CBS?

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Would the state collect the tax from just about every advertising-capable website on the World Wide Web visible to Minnesotans? If the state seeks to collect just on Minnesota-based websites, wouldn’t every website that covers Minnesota suddenly be based out of the state?

Or what about Minnesota-based companies that advertise across the country or around the globe? Or the ad agencies that place the ads?

Dayton’s proposal fails to answer these broad questions.

After Iowa enacted and then repealed an advertising tax, the Iowa Attorney General stated, “Taxing advertising was like trying to tax the elements of nature.” Florida had a six-month ad tax. The state discovered the cost of processing transactions exceeded the tax collections.

A tax on advertising could end up in the courts as a First Amendment violation anyway. Taxing commercial speech could be ruled as a chilling effect on most anyone — a big company selling gadgets or just an ordinary guy selling his guitar — wishing to mass communicate to consumers, and such a tax could be viewed as a prior restraint on the ability of news media to produce vital news, a key form of political speech.

See, most taxes are aimed at the end product, not the process. Advertising generates sales, which the state already taxes. Dayton fails to understand that taxing advertising would result in decreased sales, which in turn would decrease state revenue from sales taxes. Taxing ads is like taxing the consumer twice — once for the sale of the product itself and once for information that the product was available in the first place.

Dayton has a business background. It’s strange he doesn’t grasp that advertising is an integral part of a vibrant economy. Let’s hope his proposal is rejected by the Legislature.