You talked with broadcasters in Washington recently about your concerns that states are looking for ways to impose stealth taxes and fees that are not directly viewed as business taxes. Can you give us an example?
One of the main things we are seeing is that many state departments of revenue have significantly increased their staffing with the idea that they are now going in and auditing businesses, and one of the first groups was advertising businesses. In the state of Minnesota, every AAAA member has been audited or is being audited. Any point in the advertising business chain where an audit begins often leads to an audit of the other parts of the chain. What they are doing is looking at every transaction.
What will be the bottom line for broadcasters?
I think what they will see is state tax auditors coming in the door. Very candidly, any time an auditor comes in, they are trying to find money for the state. You don’t want to go down that road.
So this is primarily a nuisance?
No. We have some broadcasters who are producing their own ads. How are they being taxed on the services that go into their ads? It is not media anymore, it’s production.
How has the digital age affected the ad threats?
States have begun to grapple intensely with the digital world. It has changed at such warp speed that states have really been befuddled about how you deal with all the technological changes going on.
For the first time, we are seeing states looking intensely at the question of how you tax digital goods and services. Colorado has just done a big digital-goods law. Indiana had a proposal that the broadcasters were very involved in defeating. There is another in Vermont. Connecticut is looking at it. So, I consider that the next wave of what we are going to be discussing.
And that cost will be passed on to broadcasters?
Or the client. What it means is that in the long run, the client is going to pay for it, but they are going to reduce their North Carolina expenditures by 8% to make budget.
That sounds like a huge issue.
We are seeing states becoming more aggressive in watching the kind of taxes that are paid, and taking a hard look at how they tax digital goods.
Anything else to watch out for?
Another area broadcasters talked about in terms of stealth taxes was independent contractors. Broadcasters and ad agencies use a lot of independent contractors. As many of those have lost their jobs due to the economy, many have applied for unemployment insurance although their employer has qualified them as an independent contractor, which means they don’t pay state fees like unemployment and FICA.
The states and the IRS have very detailed criteria for who can be an independent contractor. And because there have been so many applications from employees who thought they were employees, and employers who thought they were independent contractors, we are seeing huge numbers of audits.
