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Tax Bill Does Not Change Ad Deductibility

In a victory for media companies, advertisers, and the creators of products and services, the sweeping House tax reform bill, which reconciles the Senate version, does not include a change to the deductibility of ad expenses that media outlets feared could take a bite out of those ad dollars.

The bill, dubbed the Tax Cuts and Jobs Act, slashes the corporate tax rate (from 35% to 20%), which the President says will allow those businesses to "create jobs, raise wages, and dominate their competition around the world." It also allows businesses to immediately write off the cost of new equipment. But it does not change the immediate and full deductibility of advertising, which broadcasters and some legislators feared it might.

A bipartisan group of 15 senators wrote their leadership to ask them to protect the current treatment of advertising as a "fully and immediately deductible" expense.

As tax reform winds its way through Congress, they wanted to make sure that current tax treatment is maintained, which treats advertising the same as any other regularly occurring expense, like wages, rent, or office supplies.

Anything that would constitute a tax on that advertising, i.e. making it more expensive by eliminating a business's ability to deduct the full cost of advertising in the year those costs are incurred "cannot be justified as a matter of tax or economic policy," the senators wrote earlier this week in advance of the bill's unveiling.

"Local broadcasters applaud today’s House Ways and Means Committee introduction of comprehensive tax reform legislation that will grow America’s economy," said Gordon Smith, president of the National Association of Broadcasters, "specifically their decision to retain the full and immediate deductibility of business advertising expenses. Study after study has shown that advertising is a driving engine for economic growth, sustaining and supporting millions of high-paying American jobs, and today’s legislative framework recognizes those important benefits. NAB looks forward to working with members on both sides of the Capitol towards passage of comprehensive legislation that modernizes the tax code to the benefit of American businesses and families.”

The developers of the entertainment software that powers the gaming community were also praising the bill.

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Entertainment Software Association President Michael Gallagher appeared to agree. He said the bill, which was authored by House Ways and Means Committee Chairman Kevin Brady (R-Tex.) would "energize tech sector innovation and economic opportunity."

"For the $30.4 billion US video game industry, which employs more than 220,000 people all across the United States, the pro-growth policies introduced will incentivize greater US investment and more high-quality American jobs," he said. "ESA commends Speaker Ryan, Chairman Brady, House leadership, and the Ways and Means Committee for crafting a reform package that drives US economic growth. The video game industry is committed to working with congressional leaders at every stage of this process.”

Tech Association ITI was also praising the broad outlines of corporate tax reform, but was still treating it as a work in progress. "America needs a pro-growth tax reform bill that modernizes the nation’s antiquated tax code. If done right, tax reform will place American companies on a level-playing field, increase competition globally, and create more jobs for Americans," said ITI President Dean Garfield. "These are the standards we will use to evaluate the entire legislative package. The tech industry thanks Chairman Brady and the members of the House Ways and Means Committee for continuing to prioritize this a once-in-a-generation opportunity. We look forward to reviewing this plan.”

In a move that could encourage folks to watch the football game on TV rather than in the stands, the bill would also eliminate the up-to- 80% deduction for buying seats at college athletic events.

The bill is scheduled to be marked up Nov. 6 in the committee, though the process could continue into later in the week the committee signaled, so there are still opportunities for additions and subtractions.

“CTA thanks House Speaker Paul Ryan (R-WI) and Ways and Means Committee Chairman Kevin Brady (R-Tex.) for charting a bold course on a once-in-a-generation opportunity to revolutionize our archaic and uncompetitive tax system," said Consumer Technology Association President Gary Shapiro. "Bold tax reform provides us with a real opportunity of reviving American entrepreneurship at a time of decline. Just by lowering the corporate tax rate to 20 percent, our country will become one of the most attractive places to launch a startup and do business. CTA continues to review the details of the Tax Cuts and Jobs Act and is eager to work with Chairman Brady and the committee as this legislation moves forward.”

Contributing editor John Eggerton has been an editor and/or writer on media regulation, legislation and policy for over four decades, including covering the FCC, FTC, Congress, the major media trade associations, and the federal courts. In addition to Multichannel News and Broadcasting + Cable, his work has appeared in Radio World, TV Technology, TV Fax, This Week in Consumer Electronics, Variety and the Encyclopedia Britannica.