The Tax On Search

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How would government define marketing vs. advertising vs. branding to apply taxes? Last week we began hearing about the governors of Minnesota and Ohio drafting bills that would require a tax on services like advertising. No doubt most businesses view it as a penalty for doing business in the state of Minnesota, according to Minnesota-based aimClear's CEO Laura Weintraub. Clients would need to factor in taxes when they set budgets.

It turns out there is an additional 1% sales tax in Duluth, so it's not just 5.5% business-to-business sales tax, but rather 6.5%. Some companies could move out of the state if the tax passes. It wouldn't take much for aimClear to relocate because its headquarters sits three minutes from the Wisconsin state line.

Wisconsin is ready. State Representative Erik Severson (R-Osceola) sent a letter to Minnesota businesses encouraging them to relocate to Wisconsin in response to Minnesota Governor Mark Dayton's proposal to increase taxes.

This hurts the small agencies like aimClear most. A handful of companies in Twin Cities -- a huge hotbed for ad agencies -- have begun to think about that 45-minute drive over the border, Weintraub said. "It's not that big a move for anyone thinking about doing it," she said. "There are no business-to-business taxes in Wisconsin."

Weintraub said businesses should begin to see the legislation around Memorial Day. There has been talk that Minnesota Governor Mark Dayton’s budget would lower other taxes to compensate the new tax hike, which some believe makes little sense.

The Star Tribune reports it would expand the sales tax to include legal, engineering, accounting, advertising, and computing. And yes, search. It would include most business services, which becomes the problem for small companies.

The burden of a business ad tax would eat up ad agency profits or be passed down to consumers paying more for services. This isn't the first time a state has attempted to initiate an ad tax. Florida attempted to tax ads around 1987, but repealed the tax six months later when national advertisers canceled ads in the state.

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2 comments on "The Tax On Search".

1. Kevin Lee from Didit
   

   commented on: March 5, 2013 at 2:11 p.m.
   Well one could certainly see advertisers pulling a similar protest against Minnesota should the tax be put in place. Perhaps Minnesota can learn from Florida's experience / mistake.
2. Tom Pick from KC Associates
   

   commented on: March 5, 2013 at 3:15 p.m.
   Thanks for this reporting Laurie. The tax on professional services, particularly advertising, has already been dubbed the StupidTax by one local agency. An article in the Minneapolis Star Tribune also noted last Sunday that 63% of the public opposes b2b taxes. So there is hope that our legislators will demonstrate more sense than our governor and shoot this idea down before it sees the light of actual legislation.

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