The Washington, D.C. City Council this week voted to compensate for a budget shortfall stemming from COVID-19 by imposing a new 3% tax on advertising and on the sale of “personal information.”
The proposed new ad tax, which is part of a larger proposed budget, will be up for a second vote on July 21.
“Many jurisdictions are exploring new ways to broaden their tax bases to help account for the budgetary blow delivered by COVID-19. One of these new sources is adding the sale of advertisements to the list of those goods and services subject to a sales tax,” a summary of the proposed budget states. “The Council set the sales tax rate at 3 percent for the sale of advertisements and expects revenues to increase by $18.4 million in FY21 and $79 million over the financial plan.”
Advertising organizations are opposing the measure.
“This will be very damaging to the business community,” Dan Jaffe, group executive vice president of the Association of National Advertisers, tells MediaPost.
He adds that the ANA wasn't notified about the proposal until this week.
“It's really disappointing that something that would have such a broad impact was never discussed with our association,” he says.
The American Advertising Federation also said it only learned of the proposal on Monday -- one day before the initial vote. The organization called the proposal “counterproductive and harmful” in an alert sent to members this week.
“In addition to being bad policy, we are quite concerned about the process,” Clark Rector, executive vice president for government affairs at the AAF, tells MediaPost. “The tax was first introduced as part of the proposed budget less than 24 hours before the Council began voting on the budget -- with no opportunity for public input or debate.”
The proposal -- put forward by District of Columbia City Council Chair Phil Mendelson -- would specifically tax “advertising services,” “digital advertising services,” and “personal information” at a rate of 3%.
The measure defines “advertising services” as “the planning, creating, placing, or display of advertising in newspapers, magazines, billboards, broadcasting, and other media, including, without limitation, the providing of concept, writing, graphic design, mechanical art, photography, and production supervision.”
“Digital advertising services” is defined as “advertising services related to advertisements displayed on a digital interface, including advertisements in the form of banner advertising, search engine advertising, interstitial advertising, or other comparable advertising.”
And the bill characterizes “personal information” as names, addresses, Internet Protocol addresses, biometric information, and “browser habits, consumer preferences, and any other data that can be attributed to a person and can be used for marketing, or determining access or costs related to insurance, credit, or health care.”
Earlier this year, lawmakers in Maryland voted to impose a new tax on companies with more than $100 million in digital ad revenue. Rates would have varied from 2.5% to 10% of revenue attributable to Maryland, with the percentage tied to global revenue.
Maryland Governor Larry Hogan vetoed that bill in May, but the state legislature can still vote to override the veto.