Newspaper advertising deduction may be in jeopardy as tax reform legislation advances

Newspapers and other businesses built on advertising are nervously watching Congress as tax reform takes center stage. At stake: the deduction for advertising as an ordinary business expense, which has been the law of the land for 100 years.

Analysis by Donnis Baggett

The deduction is one of many that could be eliminated as Congress tries to simplify, streamline and reduce federal income taxes.
Leading the tax reform effort in the U.S. House of Representatives is Ways and Means Committee Chairman Kevin Brady, R-Texas. Brady already has heard from newspaper publishers in his southeast Texas district who oppose the idea of eliminating the advertising deduction. So far he has been noncommittal at best. 
House Speaker Paul Ryan, R-Wisconsin, also has been less than supportive of newspapers’ position, saying that tax reformers must find a way to fund the government in spite of opposition from groups that would be negatively impacted by tax code changes.
Washington lobbyists for advertising interests worry that the House bill being written by Brady and his committee — which could go to the floor of the House any time now — will include an advertising provision similar to one floated in Congress three years ago.
That proposal would have required businesses to spread over a five- to 10-year period the deduction for half the cost of their advertising. Rather than taking 100 percent of advertising cost as an “ordinary business expense,” half of that expense would be amortized, similar to a capital expense.
Businesses heavily dependent on advertising — both those who sell advertising and those who must market their products and services — have strongly opposed that idea.
They argue it’s unreasonable to classify advertising as a capital-type expense. Case in point: How can an ad promoting a weekend sale at the supermarket be considered a long-term investment, when the groceries will be both sold and eaten within days?
The ramifications are huge. According to the News Media Alliance, advertising helps produce 20 million (14 percent) of all U.S. jobs and generates $5.8 trillion (16 percent) of all U.S. economic activity a year. 
The alliance says amortizing advertising costs rather than being able to take a straight deduction will make advertising more expensive to businesses. That could result in a decline in advertising, endangering approximately $353 billion in total sales over five years and threatening 1.1 million jobs. 
Texas Press Association is urging its members to contact the Texas congressional delegation and ask them to commit to retaining the advertising deduction.  It’s been a foundation of business through the most prosperous century in our history, and tinkering with it could lead to disastrous consequences…not only for newspapers, but for the nation.
Talking points are available on Page XXXX of today’s Messenger. Contact information is available at XXXXXXXX. Please let Congress hear from you now.

BACKGROUND
In the last Congress, a discussion draft on corporate tax reform was developed by then-chairmen of the congressional tax committees (Rep. Camp / Sen. Baucus). 
This draft included a provision that would require businesses to spread out over 5 (Senate) or 10 (House) years the deduction for 50 percent of the cost of their advertising. The Tax Code, since its inception 100 years ago, has allowed businesses to deduct these costs in the year they are incurred. 
The proposal was included in the draft as a revenue source for offsetting a reduction in the corporate tax rate from 35 to 25 percent. 
The “The News Media Alliance, formerly known as the Newspaper Association of America”. supports congressional efforts to reform the corporate tax structure, but is adamantly opposed to changing the tax treatment for advertising costs as it will undermine the engine that drives the US economy. 
TALKING POINTS: 
• Almost every business in the U.S. advertises, and all of them have been allowed to deduct the cost of their advertising for 100 years. Like other expenses, such as rent and office supplies, it is an “ordinary and necessary” business expense that is fully deductible in the year it is incurred. 
• Advertising continues to be the most important revenue stream to support newspaper journalism in local communities. Newspapers and other media would face serious challenges if the tax treatment for advertising costs were reduced or eliminated.
• Advertising is a driving force in the U.S. economy. Advertising advertising helps produce 20 million (14 percent) of all U.S. jobs and generates $5.8 trillion (16 percent) of all U.S. economic activity.
• The amortization of advertising costs will make advertising more expensive, and will result in a reduction of advertising. This proposed tax on advertising would place at risk approximately $353 billion in total sales over five years and would threaten 1.1 million jobs.
• The deduction for advertising costs is the correct tax policy. If this proposal surfaces in tax reform discussions, we urge you to do whatever you can to support maintaining the current tax treatment for advertising costs.
– From News Media Alliance, www.newsmediaalliance.org.