It’s one list that a service provider doesn’t want to be on:  the ever growing list of services subject to state sales and use taxes.  Once you join it, the cost of your services to your customers goes up by 4%, 5%, or more, but your business realizes none of the resulting revenue.  Additionally, you’ve got to deal with the costs of compliance with state and local sales tax collection and remittance obligations.  And your customers certainly don’t appreciate the added mark-up on your invoice.

Minnesota, Ohio, and Louisiana are among states actively considering the addition of advertising to the list of taxable services.  The most recent is the just released budget of Louisiana Governor Bobby Jindal.  His broad tax reform proposal includes eliminating that state’s income tax with the resulting revenue loss being balanced by adding personal, professional and other services to the state’s sales tax base.  While the expanded scope of the tax would generally sweep in advertising services, the Governor’s press release of March 14 states that the purchase of advertisement (“buys”) would be excluded from the tax base.  Until implementing legislation is drafted in Louisiana, the real breadth of the tax as applied to advertising services can’t be ascertained.  And even with legislation, numerous questions arise in implementing a tax on services that must be answered by subsequent administrative guidance and even litigation.

As state and local governments feel constant pressures for new revenue sources to keep their budgets balanced, turning to revisit periodically the taxation of additional services is an oft favored option.  The impact to voters is generally less publicized and of lower impact than trying to impose an across the board rate increase.

Service providers with well-developed trade associations, such as lawyers and accountants, typically have strong lobbying arms that are able keep their services from being added to the taxable services list.  In contrast, groups without strong industry representation, such as landscaping and real property repair and maintenance services, have frequently ended up on the taxable list.  The current budget sessions merit attention from service provider representatives, including those of advertisers in particular, if they want to stay off the list of taxable services.