New CT Tax to Hit Ad, Creative Agencies

(Promo) Advertising and promotion agencies are preparing to deal with a new Connecticut sales tax to be imposed on advertising services beginning April 1.

Advertising services related to the development of media advertising or cooperative direct mail advertising, such as layout, art direction, graphic design, mechanical preparation and production supervision, will be subject to 3% sales and use taxes. Sales of nonmedia advertising services and direct mail advertising services, other than cooperative direct mail, will be taxed at 6%.

“Administratively it’s going to become a nightmare to disseminate what is taxable and what is not taxable,” says Jim Plattner, senior vice president /chief financial officer for J Brown/LMC Group in Stamford, CT. “From our clients’ perspective, their budgets are locked and really tight. They can’t go back and say, ‘I need another 3% or 6% on top of everything else because Connecticut changed its sales tax laws.’ The client may say, ‘We’re going to have to reduce our spending by that amount to cover you having to charge us the sales tax.’ That will really hurt us.”

Howard Steinberg, CEO of Source Marketing, Westport, CT, agrees: “In a time of increasing budget pressures and bottom-line intensity, here comes another factor that will place some downward influence on marketing spend.” The American Association of Advertising Agencies (AAAA), along with the Association of National Advertisers, is continuing efforts to repeal or ameliorate the tax. Concern is growing that other states will adopt similar measures. The tax law was passed as part of a budget deficit bill in February as a short-term fix to help reduce the state’s $500 million deficit.

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