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F I S C A L I M P A C T R E P O R T

SPONSOR Rawson

DATE TYPED 3/2/05

HB

SHORT TITLE ADVERTISING SALES GROSS RECEIPTS

SB 733

ANALYST Padilla-Jackson

REVENUE

Estimated Revenue

Subsequent

Years Impact

Recurring

or Non-Rec

Fund

Affected

FY05

FY06

($1,500.0)

Similar Recurring

General Fund

($1,000.0)

Similar Recurring Local Governments

(Parenthesis ( ) Indicate Revenue Decreases)

SOURCES OF INFORMATION

LFC Files

Responses Received From

Taxation and Revenue Department (TRD)

SUMMARY

Synopsis of Bill

Senate Bill 733 would expand existing statutes to allow a gross receipts tax deduction for re-

ceipts from selling advertising space in a publication, including a newspaper, magazine or other

periodical. A gross receipts tax deduction would be allowed against receipts for the sale of radio

or television broadcast time for advertising. Lastly, the bill would allow a tax deduction for

commissions of advertising agents for obtaining advertising space in a publication, including a

newspaper, magazine or other periodical or obtaining radio or television broadcast time for ad-

vertising. Current law allows the deduction if advertising in on behalf of national or regional

sellers

The effective date of the provisions of this bill is July 1, 2005.

FISCAL IMPLICATIONS

The total fiscal impact of this bill, according to a TRD estimate, is -$2.5 million in FY06, of

which -$1.5 million would impact the General Fund, and -$1 million which would impact local

Senate Bill 733 -- Page 2

governments. TRD’s estimate assumes that a majority of the $2.6 million currently being col-

lected from the broadcasting industry is attributable to advertising revenue. The estimate also

reflects most of the tax currently being reported by the newspaper and periodical industries and

most of the tax being reported by the advertising industry. This analysis was based on data from

the TRD’s “Analysis of Gross Receipts by Industry Classification.”

ADMINISTRATIVE IMPLICATIONS

The administrative impact is anticipated to be fairly modest to TRD.

OTHER SUBSTANTIVE ISSUES

TRD notes that there is no tax policy rationale for the proposed deductions. The principle under-

lying the gross receipts tax is that all businesses engaged in business in the state should pay a

privilege tax. They believe that this proposal would erode the gross receipts tax base and place

strong upward pressure on tax rates.

OPJ/yr