The Virginia Senate Finance Committee, which has spent most of this year's session seeking new revenues for the state's cash-strapped coffers, today approved a bill granting a $1.2 million a year tax break to large retail merchants.
The measure, which has already passed the House of Delegates and would be effective in mid-1984, would wipe out an existing 4 percent state and local sales tax on the cost of printing newspaper advertising inserts placed by large retailers, such as Dart Drug, K-Mart and J.C. Penney.
The bill was a top priority of the Virginia Retail Merchants Association, which argued that its members were reducing their advertising budgets by 4 percent, and thus costing the state money, because of the tax. The measure was also backed by most of the state's newspaper publishers.
"This is not a tax break," said Sumpter Priddy, the retail merchants' president. "You know if it weren't for advertising, there wouldn't be any newspapers."
To bolster his case, Priddy and the merchants distributed a pamphlet written by a University of Virginia professor that concluded the tax was "bad economically for Virginia and Virginians." The pamphlet, whose author was described as an expert who "does research with and for retailers," said that the tax was causing unemployment and contained a photo of jobless workers waiting outside an employment office.
"This is a classic case of an economist drowning in a river three feet deep," said William Forst, state tax commissioner, of the pamphlet. "It misrepresents what advertisers do in the marketplace."
Forst said the total cost of the bill will be $1.2 million in revenues annually--$900,000 of which, or three-fourths, would be lost to the state and the remainder to local governments.