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Gonzalez joins Texans opposing Performance Tax, Ad Tax

Freshman Congressman Vicente Gonzalez, D-McAllen, has joined the roster of Texas lawmakers opposing the record labels’ effort in Congress to force local Radio stations to pay a new performance royalty or “tax.” This new royalty would be imposed on top the hundreds of millions of dollars in royalties local Radio broadcasters collectively already pay each year to ASCAP, BMI, SESAC, and now GMR.

Gonzalez signed on as co-sponsor of HConRes 13, The Local Radio Freedom Act, co-authored by two Texans – Reps. Mike Conaway, R-Midland, and Gene Green, D-Houston – after meeting with his local broadcasters in his Edinburg office last month.

His support brings to 18 the number of Texas lawmakers who have signed onto the resolution.  Three other congressmen who have co-sponsored in the past but have not yet renewed are listed below. Radio GMs in these lawmakers’ communities are encouraged to weigh in directly with the lawmaker or staff and ask for their support:

Broadcasters should note to Culberson, Hurd and Williams that the threat of a Performance Tax is real – witness two separate bills by a New York Democrat and California Republican that would enact a performance royalty in different ways.

The NAB’s background paper on this issue is helpful in preparing to address the issue with lawmakers or staff.

To date, the resolution has the support of 177 House members, still short of the majority 218 needed to stop consideration of either bill proposing a Performance Tax.

Ad Tax

Gonzalez – one of only four Texans on the House Financial Services Committee – also signed onto a bipartisan letter to House leadership opposing any change to businesses’ full deductibility of advertising costs in the year they’re incurred. The deduction has been in place since the income tax code was adopted 114 years ago.

Such a change would amount to a back-door Ad Tax and is broadcasters’ greatest concern when it comes to federal tax reform because of a previous plan to reduce the deduction by 50 percent in the first year an expense is incurred, with the balance to be amortized over the next five to 10 years.

Gonzalez noted that he relies extensively on advertising in his law practice and acknowledged its importance to new business and job creation.

He and six other Texas Congressman were among the 124 House members who co-signed the letter to Speaker of the House Paul Ryan underscoring the importance of advertising to economic activity. They noted that in 2014 advertising supported 20 million U.S. jobs and $5.8 trillion in U.S. sales, and drove 19 percent of the country’s Gross Domestic Product.

The seven Texas Congressmen who co-signed the letter to Ryan opposing an Ad Tax include:

  • Rep. Blake Farenthold, R-Corpus Christi
  • Rep. Vicente Gonzalez, D-McAllen
  • Rep. Gene Green, D-Houston
  • Rep. Sheila Jackson Lee, D-Houston
  • Rep. Michael McCaul, R-Austin
  • Rep. Pete Sessions, R-Dallas
  • Rep. Lamar Smith, R-San Antonio

The tax reform blueprint developed in part by House Ways and Means Committee Chairman Kevin Brady, R-Conroe, preserves the full deduction for advertising costs, but the plan relies in large part on a new and controversial border adjustment tax (BAT). If opponents succeed in stripping the BAT from the reform effort, lawmakers could be forced to look at an Ad Tax to make up for cuts elsewhere in the system, among other measures.

A plan developed a few years ago by one of Brady’s Republican predecessors slashed the advertising deduction in half and proposed allowing businesses to spread out the deduction for the remaining costs over the next five to 10 years.

While more of a “backdoor” Ad Tax than a straightforward transactional sales tax, this change would still provide a disincentive for businesses to advertise and defeat the very purpose of tax reform which is to increase economic activity.

More than 60 Texas broadcasters co-signed a letter to the Texas Congressional delegation in February urging them to preserve the current deduction. TAB continues to educate lawmakers about the value of the deduction and importance of advertising to every level of the economy.

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