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ANA Sounds The Alarm: US Tax Proposals Could Kill The Ad Industry & Domain Monetization

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Under US tax law, advertisers are allowed to deduct 100% of the amount they spend on advertising on their tax returns.

However according to The Association of National Advertisers (ANA), several pieces of legislation are expected to be introduced by House Ways and Means Committee which would require advertising costs to be amortized over three years, rather than deducted in the year the funds are spent or limit the amount of tax deductions for advertising to a percentage of the amount spent in any particular year.

The ANA wrote in a note to its members:

“We have learned that there is a strong likelihood that Ways and Means Committee Chairman Dave Camp (R-MI) will include some restriction on advertising deductibility in his initial draft of a tax reform bill.

“The restriction being discussed could take two forms: (1) allowing businesses to deduct only a percentage of their advertising costs or (2) requiring them to amortize those costs – postponing the deduction of the costs over several years until long after the advertising has appeared. Either change would impose multibillions of dollars in additional costs on the business community.

“Chairman Camp is expected to release a draft of a tax reform bill soon and begin markup later this month. It would appear that the Ways and Means Committee is giving such serious consideration to this change because it would generate a substantial amount of tax revenues, not because their position is supported by economic theory.”

“Indeed, either form of a tax on advertising would cost the nation millions of jobs and hundreds of millions of dollars in lost economic activity. This is a direct impact documented by a landmark study of the economic impact of advertising on the U.S. economy. ”

Of course included in advertising  are money companies spend on PPC advertising, payments to affiliates and other sources that trickle down to domain holders that  monetize their domains through parking and affiliate programs and direct relationships with advertisers

You might want to follow the ANA advice here:

“It is critical that you contact your Member of Congress who serves on the Committee and express your strong opposition to such a proposal. If your Member of Congress is not on the Ways and Means Committee, ask them to contact their colleagues to call on them to oppose strongly this misguided proposal. We have prepared talking points you can use in your contacts.”

About Michael Berkens

Michael Berkens, Esq. is the founder and Editor-in-Chief of TheDomains.com. Michael is also the co-founder of Worldwide Media Inc. which sold around 70K domain to Godaddy.com in December 2015 and now owns around 8K domain names . Michael was also one of the 5 Judges selected for the the Verisign 30th Anniversary .Com contest.

Comments

  1. Danny Pryor says

    One must appreciate that ad revenue “trickles” to the domain owners. LOL! Actually, it’s pretty sad, but that’s a complete digression.

    As for the tax bill, I take advantage of that deduction each year, of course. Sometimes, it is a consideration that can tilt the argument in favor of ad spend. Certainly there would be a massive impact. I could support a minor type of industrial sales tax on advertising, with funds specifically earmarked. But, eliminating the deduction from corporate income taxes is a very ill-conceived idea. There is no doubt in my mind the ad industry, and some aspects of the domain industry, would contract as a consequence.

  2. Grim says

    This is incredibly silly. If it reduces ad spending and revenue, then any taxation on that revenue that the government would normally receive would be reduced as well. I’m betting it doesn’t pass. It simply makes no sense.

  3. jp says

    Scary part for advertisers is it is like Gas for cars. Whether they can expense it or have to amortize it they still need advertising.

  5. Peter says

    “Of course included in advertising are … payments to affiliates” – this makes no sense.

    Affiliates are typically considered sales agents that earn a commission for performance.

    On the flip side many affiliates buy advertising so it could affect *them* this way.

  6. John Berryhill says

    “ANA Sounds The Alarm”

    Their panic knob is always turned to eleven.

    “National Association Of Mad Prophets: End Of World Soon!”

  8. Louise says

    That’s interesting, but a more compelling prospect is the bill Senator Carl Levin introduced on the 19th, titled, the “Stop Tax Haven Abuse Act.”

    Included in the bill is the section about country-by-country reporting, one that has perplexed me whenever I attempt to understand an annual report, about the deductions and profits of overseas affiliates:

    Section 201 – Country-By-Country Reporting

    Section 201 of the bill would tackle the problem of offshore secrecy that currently surrounds most multinational corporations by requiring them to provide basic information on a country-by-country basis to the investing public and government authorities.

    Many multinationals today are complex businesses with sprawling operations that cross multiple international boundaries. In many cases, no one outside of the corporations themselves knows much about what a particular corporation is doing on a per country basis or how its country-specific activities fit into the corporation’s overall performance, planning, and operations.

    The lack of country-specific information deprives investors of key data to analyze a multinational’s financial health, exposure to individual countries’ problems, and worldwide operations. There is also a lack of information to evaluate tax revenues on a country-specific basis to combat tax evasion, financial fraud, and corruption by government officials.

    The lack of country-specific information impedes efficient tax administration and leaves tax authorities unable to effectively analyze transfer pricing arrangements, foreign tax credits, business arrangements that attempt to play one country off another to avoid taxation, and illicit tactics to move profits to tax havens.

    For example, earlier this year, the Subcommittee hearing on Apple disclosed for the first time that it had three wholly owned subsidiaries in Ireland which claimed the bulk of Apple’s sales income, but also claimed not to be tax resident in any country. One of those subsidiaries, Apple Operations International, had no physical presence at any address and, in thirty years of existence, no employees. It was run entirely from the United States, but claimed it was not a U.S. tax resident. Over a four year period from 2009 to 2012, it declared $30 billion in revenues, but paid no corporate income tax in the United States, Ireland, or any other jurisdiction. Apple Sales International, a second Irish subsidiary, received sales revenue over a three-year period, from 2009 to 2011, totaling $74 billion, but did not declare any of that income in the United States and apparently only a tiny fraction in Ireland. In 2011, for example, it paid no corporate income taxes at all in the United States and only $10 million in taxes in Ireland on $22 billion in income, producing an overall tax rate of five-hundreds of one percent. It is far from clear that either U.S. or Irish tax authorities were fully aware of the actions taken by Apple to avoid taxation in both countries.

    Purely from the perspective of evaluating a company’s financials, why does guesswork have to factor in what is happening with profits overseas? They, you, we, I have an obligation to make clear where ALL of our income derives and where it goes for tax purposes, and public companies, for proper investor evaluation. Can’t wait until this becomes law – get the popcorn! 🙂

  9. Louise says

    Here is the link: http://www.levin.senate.gov/newsroom/speeches/speech/senate-floor-statement-on-introducing-the-stop-tax-haven-abuse-act

    Since some $1.7 trillion in profits are being held overseas by U.S. companies, with no taxes paid to the United States, the, Stop Tax Haven Abuse Act would bring more to the coffers of the treasury, instead of trying to milk business spend on advertising, or, taking out of the pocket of average hard-working Americans, as has been discussed with the mortgage deduction:

    Eric J. Toder, the co-director of the Urban-Brookings Tax Policy Center, advised Congress that “[a]chieving a revenue-neutral tax reform that reduces marginal tax rates significantly would be difficult or impossible to achieve without cutting back the mortgage interest deduction or some other equally popular and widely used provisions.”
    – 11 Reasons Why I Never Want To Own A House Again by Kelly Erb

  10. Michael Berkens says

    JP

    They still need advertising but they won’t be able to spend as much on it when it costs them more

    When Gas hit $5 a gallon people stopped driving as much and prices quickly fell

    Don’t expect total ad dollars at least by US companies not to take a hit if this type of tax bill passes

    The Tax code only purpose is to raise revenue.

    There needs to be a simple flat tax

    The tax code should not be used to change economic behavior including the mortgage interest deduction

  11. Louise says

    There needs to be a simple flat tax

    Researching this article led me to testimony of Edward Kleinbard, Professor of Law at the University of Southern California’s Gould School of Law, who recommends:

    “Genuine worldwide tax consolidation, combined with a corporate tax rate squarely in the middle of the pack of peer countries’ rates – say 25 percent. Financial accounting norms of course require worldwide consolidation in presenting the results of a multinational firm’s activities. The resulting system is simple and, more important, highly resistant to tax gaming, because there are no positive returns to base erosion or profit shifting.”

    So great minds are working on this. A global tax rate would eliminate incentives to open businesses overseas, with resulting loss of jobs. Even Cisco CEO John Chambers implied 20% would be enough to lure Cisco’s $40 billion back to the States . . . “Get us close,” he said in an interview with Leslie Stahl

    The tax code should not be used to change economic behavior including the mortgage interest deduction.

    Comments on Kelly Erb’s article noted the deduction is one of the huge selling points available to brokers.

    95 percent of Apple’s collective creative genius is located in a single zip code in Cupertino
    CA. The Public Services Investigation’s report on Apple conducted earlier this year, found that less than one percent of Apple’s worldwide research and development was conducted by its Irish subsidiaries, and that in 2011, 95 percent of Apple’s worldwide research and development was conducted in California. Yet, $74 billion in income over the four year period 2009-12 from this Cupertinocentric creative genius got shifted to the stateless company that is Apple in Ireland.

    In case you didn’t know,

    Because U.S. tax law bases tax residency on the place of incorporation, and Irish tax law bases tax residency on where a corporation is controlled, Apple says these subsidiaries are tax resident nowhere and therefore paid almost no corporate income tax to any country.

    Check-the-Box was intended to provide relief domestically for taxpayers who were having difficulty determining whether they should taxed at the entity level, or have the income pass through to its owners, but is abused to circumvent Subpart F taxation of passive income, for multi national corporations of their affiliates.

    This is the time to create a Hall of Shame for companies who benefit from our educated workforce, infrastructure, and security – yet, keep more than 70% of their cash offshore, just culled from the top 100 publicly traded firms, leaving ordinary Americans to pick up the tab.

    Not the small fry who read or write this blog, but the most profitable corporations who even make $$ from the tax code by avoiding taxes, yet receiving rebates.

  12. Louise says

    What could be the tag line of TaxElitism.com?

    They Are Not on a Holy Mission to Change the Tax Code!
    Wake Up, Americans, You’re Being Financially Raped!
    We’re Pulling the Wool From Our Eyes!