Broadcasting Telecasting (Oct-Dec 1957)

MONDAY MEMO from Wilbur VanSant, president, VanSant, Dugdale & Co., Baltimore BALTIMORE'S SHORTSIGHTED AD TAXES: HOW THEY CAN THROTTLE RADIO -TV It is doubtful if any tax measure ever proposed or adopted in the City of Baltimore has aroused as much adversity from all segments of business and industry as have the recentlyadopted taxes on advertising. Nor is the criticism confined to Baltimore's city limits. Business interests everywhere are equally vociferous in voicing the detrimental effects of the taxes. From their inception, certain segments of the taxes have remained quite vague. Apparently little thought was given to the disadvantages placed squarely in front of media. This is particularly true for those in radio and television. The advertising ordinances impose a tax of 2% per year on the gross receipts derived from the sale of radio and television time, plus a 4% sales tax on the total sales price of each and every sale of time on radio and television originating from Baltimore. Television and radio in legal actions have pointed out pertinent facts concerning validity of the new tax laws. In the case of most, and probably all, of the broadcasting companies within the city limits, programs are beamed at and received by listeners in some or all the areas of Maryland, New lersey, Virginia, Delaware, Pennsylvania, West Virginia and the District of Columbia. This type of operation has been declared interstate in nature by Congress. It also is contended that the rates for the sale of time by Baltimore's radio and tv companies are determined in part by the interstate area to which the companies broadcast their signals. From this, it appears the taxes do impose an unlawful and undue burden upon the flow of commerce, thus violating the Commerce Clause of the Constitution of the United States. Certainly the adopted tax measures do not provide standards for determining what they seek to tax and in this sense they violate the Due Process Clause of the 14th Amendment of the Constitution as well as Article 23 of the Maryland Declaration of Rights. CITY OVERESTIMATES THE POSSIBLE RETURN Departing from the legal aspects of the taxes, since present and future legal action will determine these points, there are violations of basic good business principles which make them completely and thoroughly bad taxes. There is good reason to doubt that the taxes will raise anywhere near the figure which the mayor and city council claim will be raised. Their estimates are based on the present advertising expenditures. But if the new taxes drive advertising business from Baltimore — and they certainly will — then the tax revenues estimated will decline. There seems little room for doubt that advertising taxes such as these will start a decline of advertising business — a downward spiral that will have serious and far-reaching effects on Baltimore or any other city which might adopt them. Advertising directly and indirectly creates most of the jobs in any city — as in America as a whole. Advertising is an important factor in selling the goods and services we use. It is an inescapable fact that without advertising there could be no mass production and mass distribution. I know of no informed person who seriously questions the key role advertising has played in giving us the highest standards of living in the world — the best jobs, the most of the necessities and luxuries, and a strong unfettered press, radio and television communication industry. To the best if my knowledge, advertising taxes such as those adopted in Baltimore have never been enacted before. Some cities and states have looked at similar propositions and wisely discarded them. The decisions to discard them were based on some or all of the following reasons: The adopted taxes, limited to Baltimore, place every advertiser and every advertising medium in the city in an unfair competitive position with similar businesses over the city line. For this reason they will drive many businesses out of the city and deprive the city of other revenue from these businesses far in excess of the amount hoped for from the new taxes themselves. Baltimore stations already are considering moving studio operations to tower locations, most of which are across the city line. Officials of one station, with both studios and towers located within the city, stated that they "probably will go out of business or move to another city." Their future action depends entirely on the legal disposition of suits now in the Circuit Court of Baltimore. NATIONAL ADVERTISERS JUST WON'T PAY MORE The new taxes, if put into effect, will curtail local advertising. National manufacturers and advertisers stated this in telegrams and letters to the city council and the mayor's office when the taxes were under consideration. Baltimore's radio and television may suffer more than other local media. When this comes to pass, radio and television companies have no choice but to lay off employes and reduce salaries. This could set up a chain reaction that would wreck Baltimore's economy, for as employes in one part of the city's business have less total money, they pass along less to other businesses in the form of expenditures and taxes. There is another grave danger to television and radio in these advertising taxes. If one tax of this kind, singling out only the communications industry, is allowed on the books, the door is open for any and every type of political control. Any government — even a city government — could through just such taxes as the Baltimore advertising tax make it impossible for any station, any newspaper or magazine, to sell the only thing they have to sell by simply threatening to double or treble taxes. This is not fancy, it's fact. It has happened under forms of government less democratic than ours. This must not happen in Baltimore or anywhere in our United States. All these factors demonstrate why the Baltimore advertising taxes are thoroughly bad and would be equally bad for any other city. Wilbur VanSant; editc. Baltimore Polytechnic Institute, Lehigh U. Started advertising career in Philadelphia; in 1914 established present agency in Baltimore which has grown to be one of America's larger advertising-marketing-public relations firms. Nationally known as a speaker and writer on business subjects and in the fields of economics and social sciences, Mr. VanSant has played a major role in opposing Baltimore's recently-en acted taxes on advertising media [see story, Adv. & Agencies]. Broadcasting December 23, 1957 • Page 97