Arlington County is proposing to erase its tax on media buy receipts, having realized the chances are nil of landing a new advertising firm, or keeping its existing ones, if it maintains the levy.
Media buys are little more than pass-throughs for advertising agencies. The real revenue goes to the newspaper or TV channel or website that runs the ad.
With that in mind, Arlington in 2004 reduced the Business, Professional and Occupancy Licensing (BPOL) tax for firms that could demonstrate 50 percent or more of their previous year’s gross receipts were used to buy media for unaffiliated clients.
By cutting the tax from 36 cents to 20 cents per $100 of gross receipts, Arlington hoped to lure more small and medium-sized advertising firms to the county. It didn’t work. Currently, only two advertising companies qualify for the lower rate, and there are fewer advertising agencies in Arlington than there were in 2004.
Meanwhile, Montgomery County and D.C. have no BPOL tax, and eight of the top 20 creative advertising agencies in the Washington area are located in Fairfax, which doesn’t tax media buy receipts at all, according to the county's report (and the Washington Business Journal's list of top firms.
Only one of the top 20 agencies, LM&O Advertising, is based in Arlington. It's No. 2, per the WBJ's list, with $58.2 million in 2011 capitalized billings.
“When advertising agencies consider their options, Arlington’s tax structure puts the county at a severe disadvantage to other localities because of the burden on business license tax,” county staff wrote in a report to the county board, which will be asked to eliminate the gross receipts tax on media buys in early 2013.
“In fact, once a company attains a certain critical mass, the BPOL tax liability can become one of the single largest expenses for an organization. In addition, these companies may see more affordable lease rate options in neighboring jurisdiction as a compelling factor to locate their business elsewhere.”
Arlington's competitiveness in a “new economy,” where the federal government is no longer in the market for large office spaces, will “depend on establishing, attracting, and retaining creative, high growth companies.”
If the board agrees, the tax cut will reduce Arlington’s revenue by an estimated $200,000. It would also signal a willingness to evolve the local tax code to attract new business, an idea D.C. Mayor Vincent Gray would like the D.C. Council to grasp.