House of Representatives Ways and Means Committee Chairman David Camp (R-MI) provided his long-awaited tax plan yesterday, and it contains a provision that would limit the expensing of advertising costs to 50% the first year with the amortization of the rest over 10 years. However, Camp said he’d be willing to include a measure that would exempt the first $1 million in advertising expenses.
Even with the exemption, advertiser groups met the news with dismay. “Chairman Camp’s proposal is a major new tax liability for businesses that would increase the cost of advertising and cause a substantial disincentive for companies to spend additional advertising dollars,” said the Association of National Advertisers, in a statement.
Camp called his measure, which would reverse a law in place since 1986 that exempts all advertising expenses from being taxed, a “tradeoff” to capping the corporate tax rate at 25%. The corporate tax rate is now 35%. According to Camp’s proposal, the Joint Committee on Taxation found that changing the provision related to the expensing of advertising would increase revenue by $169 billion between 2014 and 2023. “If we don’t [cut this kind of loophole], we will fall behind the rest of the world,” Camp said. “We need to have this debate; we need to move this country forward.”
Camp’s proposal follows one in the U.S. Senate introduced late last year that would only allow companies to deduct 50% of the money they spend on advertising dollars in year one, with the remaining 50% amortized over the next five years. Both Congressional chambers would have to agree on the measure before it could become law, and Camp acknowledged yesterday that Congress probably wouldn’t take up debate of the bills in 2014.
It’s a proposal, though, that marketers and the ad specialty industry will be watching closely. “Advertising is not a capital expenditure and the effect of most advertising messages or impressions lasts days at best, not years,” said Greg Muzzillo, founder of Top 40 distributor Proforma (asi/300094), upon the announcement of the Senate proposal. “There’s no sensible explanation for expensing something beyond its useful life. I am not smart enough to imagine all the problems this legislation could create for our customers, but I am smart enough to worry that it can’t be good for our customers or our industry.”