ATTN: HOUSTON ADVERTISING FEDERATION MEMBERS
Please forward this to your bookkeeper, accountant, agency principal or staff member
who is most familiar with your company''s accounting procedures.
The Texas Legislature has passed a bill that will create a broad-based tax on Texas
businesses. Governor Perry is expected to sign the bill in the next few days. The
Houston Advertising Federation is concerned about the potential impact of this tax on
our industry. We are seeking to learn more about how our members treat pass-through
expenses such as media buys and production costs.
Under the bill (aka "The Sharp Tax Plan"), businesses would pay a tax based on their
REVENUES, less either their payroll costs or their costs of goods sold. Most
advertising agencies would likely deduct their payroll expenses. If an such an agency
has significant media buys and production costs included in their REVENUE calculations,
then they would pay a higher tax than an agency that has excluded media and production
costs from their revenues.
We have confirmed that most of the large national and international agencies (Omnicom
and Interpublic entities) do NOT include media buys and production costs in their
revenues and will therefore not face an inflated tax. Based on specific contract
agreements that they have with their clients, they are able to include the flat costs
of these items in their "billings" calculations and then book the fees and commissions
associated with these items separately as part of their "revenues."
We''d like to know more about how our member agencies treat these costs when reporting
their revenues on their IRS Form 1120 (Federal Corporate Income Tax Return). Please
take 30 seconds to fill out this short survey: http:www.liaisonresources.com/tax/
Your answers will be kept confidential. If we determine that a large number of our
members include media buys and production costs in their revenue calculations, then we
will consider ways to address the problem at the legislative, regulatory or member
If you have any questions, please email Ad Fed Government Relations Chair Dave Claunch
>. Thank you for your feedback!