04/07/2015

Advertising Restrictions and Tax Deductibility

As Congress looks towards possible tax reform, it may consider limiting or eliminating the ability of businesses to deduct the full cost of advertising in the year the advertising is purchased. Indeed, two proposals released last Congress would have significantly limited the deduction by allowing businesses to deduct just 50% of its advertising costs in the year the advertising is purchased and amortizing the balance over a 5- or 10-year period.

For almost 100 years, businesses have been able to deduct the cost of advertising as an “ordinary and necessary” business expense. Limiting or eliminating the deduction for the cost of advertising would effectively impose a new tax on businesses, increase the cost of advertising and thereby reduce the amount of advertising that businesses can purchase. The impact of any proposal to limit advertising deductibility has the potential to slow the U.S. economy and job growth.

Advertising is a critical component to the economic vibrancy of the U.S. economy and stimulates a large amount of sales and jobs in every state and Congressional district in the country. In 2013, advertising supported 21.7 million jobs in America, according to a study by economic consulting firm IHS Global Insight, Inc. The study also revealed that advertising accounts for $5.8 trillion in U.S. sales, and every dollar of ad spending generates $22 of economic output.

Advertising revenue is especially crucial to local television and radio stations, and it is some stations’ only source of revenue. All stations rely on these advertising dollars to deliver vital news, emergency information and high-quality entertainment to their local communities. Limiting or eliminating the deduction would harm stations’ ability to reinvest in local programming and local communities. (See MDCD Local Stats and Stores (link)).

Letter Opposing Changes to Advertising Deductions

On June, 2015, a bipartisan group of 87 Members of Congress sent a letter to Speaker Boehner and Minority Leader Pelosi expressing opposition to any change to the deductibility of advertising.  Maryland Congressmen Chris Van Hollen and John Delaney joined this letter.    

MDCD urges Congress to oppose any changes to limit or eliminate the deductibility of advertising.

February 2015