(FORTUNE Magazine) – FEW PEOPLE had a better understanding of how the tax-raising process works than former Louisiana Senator Russell B. Long. His classic comment: ''Don't tax you, don't tax me, tax that fellow behind the tree.'' In April the state of Florida enacted a 5% sales tax on services to go into effect July 1. The folks behind the tree in this case: advertisers anywhere in the world who hawk their products anywhere in the state in print or on radio and television. Under the law, they must pay a tax proportional to the size of the Florida audience exposed to their ads. Thus, if a McDonald's commercial runs on a nationally broadcast show, McDonald's will have to find out from the broadcaster's Florida affiliate how many people in Florida saw it, and pay Florida a tax based on how much the network charged for the advertising time. While Florida follows four other states -- Hawaii, Iowa, New Mexico, and South Dakota -- in broadly taxing services, it is the only one to include national advertising among them. Governor Bob Martinez, the Republican who pushed the tax, has asked the Florida Supreme Court for a speedy advisory opinion on the tariff's constitutionality. If Florida is successful in taxing advertising, the effects could be far-reaching. At least half-a-dozen other states, including megasize Texas, are watching the experiment closely to see whether they too can tap ad revenues. The residents of Florida are among the least taxed U.S. citizens. Floridians outlawed a state income tax in 1924 and did not start paying a sales tax until 1949. As a result, Florida ranks 47th in per capita levies, a statistic that has certainly helped fuel the state's remarkable growth. But its pinchpenny ways have put Florida dead last in the social services it provides its ever-expanding population. Over the next ten years, the state will have to spend $52.9 billion on infrastructure, according to the Florida State Comprehensive Plan Committee, a group of business and political leaders. The money is needed to build and develop more highways, schools, jails, and sewage-treatment plants. A sales tax on services is appealing in theory. By assessing everything from accountants' fees to pet grooming costs, the state can spread the levy's impact. Everybody's fur gets shorn. A sales tax that includes services is also less regressive than one that doesn't, because the well-to-do consume more services than the poor do. Such a tax broadens the state's revenue base and reduces its dependence on the sale of goods. In Florida, the quintessential service economy, 81% of the jobs are in service businesses that do not make anything. Service taxes, however, are difficult to collect and even harder to administer. The state estimates that only 72% of the taxes due will be paid in the first year. In Florida the tax is on transactions rather than on gross receipts; it is paid by the person who buys the service and collected by the state from the provider of the service. Users can wind up paying the tax more than once on the same service. A Florida resort that pays a 5% tax for, say, janitorial services will likely pass on the extra operating cost to its guests in the form of higher room rates, on which another 5% tax is added. There are enough exemptions to the service tax to fill the Orange Bowl. Some ) will make the tax more equitable, but others appear to be triumphs of successful lobbying. Barbers and beauticians won't have to charge their customers an extra 5% on the grounds that the poor need shaves and haircuts too. Tickets to sports events are taxed save for high school athletic events and the Super Bowl, the ultimate tourist spectacle. Accountants have to tax their clients, but stockbrokers and travel agents generally do not. Other kinds of exemptions seem sure to create reams of paperwork, not to mention opportunities for finagling. Banks will hit up depositors for 5% on traveler's checks, money orders, safe-deposit boxes, and bad-check returns, but not for loan interest or checking account minimum-balance fees. Real estate salespeople will tack 5% onto their commissions, unless they are helping a seller dispose of a primary residence. Lawyers must pass the tax on to their clients, but child support, personal bankruptcy, and civil rights cases are exempt from it. Defendants in criminal proceedings must pay the tax on legal fees only if they are convicted. IN A LAW replete with anomalies and contradictions, the tax on advertising stands out like an oak tree in Miami Beach. Not only will national advertisers, publishers, and broadcasters feel it, but so will Florida newspapers, magazines, television and radio stations, and cable systems. They all will have to add 5% to their charges for advertising time or space. Ad production costs for local Florida advertisers will be taxed as well, regardless of whether the work is done in-state. On the other hand, advertisers that use Florida agencies for ads that run outside the state will be exempt. Billboards and direct-mail advertising are taxed, but not other forms of nonmedia advertising such as couponing. Several media organizations (including Time Inc., publisher of FORTUNE) lobbied extensively against the tariff. NBC, the National Association of Broadcasters, and the Television Bureau of Advertising protested by canceling conventions they had scheduled in Florida. Six national advertisers, including Procter & Gamble, General Foods, and Nabisco Brands say they will slash the amount of advertising they do in the state until the tax is removed. National Geographic is offering advertisers a 49-state edition -- minus Florida -- a move that other publishers are considering. Asserts William F. Gorog, president of the Magazine Publishers Association: ''The state is beginning to recognize what a monster it has created.'' Broadcasters and publishers argue that tax-related bookkeeping will be onerous. Gorog uses this example: ''Take Country Home, which has a national circulation of 852,000, with 28,000, or 3.2%, in Florida. A quarter-page ad costs $6,500, and 5% of the 3.2% Florida audience yields a tax of $10.52. The administrative cost will be higher than that.'' An even bigger worry for the media is that more advertisers will boycott the state and deprive them of business. Peter G. Diamandis, president of CBS Magazines, figures that $1 billion a year in national ads is at stake. A report by Wharton Econometrics estimates that cutbacks in advertising will cost the printing and communications industry 4,300 jobs, and reduced business activity could result in the loss of as many as 46,000 jobs statewide by the end of 1989. The high-decibel campaign to roll back the advertising tax has created something of a stand-pat attitude in Florida. Many Floridians believe that as residents of what is now the U.S.'s fourth most populous state, they are too good a market for advertisers to ignore. Says Susan Traylor, press secretary to Governor Martinez: ''We think it is all a bluff. I would bet anybody $100 that the first time Nabisco sees its sales fall in Florida, it will start advertising again.'' Economists have criticized the Wharton study for overstating the tax's economic impact. As Wharton itself acknowledges, increased government spending made possible by the additional tax revenues will reduce the net job loss by one-third. Henry Fishkind, an economist with Orlando's M.G. Lewis & Co., says that instead of cutting back in Florida, advertisers are more likely to raise the prices of their goods. They can afford to do so since the tax will affect them all equally. Says he: ''It is hard to see that a 5% tax is very onerous.'' FOR ALL THE controversy that the service levy is generating, the revenue raised will be scarcely a drop in the ocean of Florida's needs. It will generate only $777 million in the 1988 fiscal year -- about $92 million of that will come from the tax on advertising -- and $1.2 billion annually after that. At best, assuming collections eventually reach the 90% level that the state forecasts, the tax will fall short of solving Florida's social spending problems over the next decade. What the state really needs, say some prominent economists and business people, is a personal income tax. But ''an income tax is one of those things that, if you are a politician, you never mention. If you do, you are never elected,'' says economic consultant Kevin C. Schultze, of Financial Resource Associates in Anna Maria, Florida. Who wants to tax you and me? In Florida's case 18.5% of the population consists of retirees who have migrated there in part because it is a tax haven. Nonetheless, an income tax would give the state a broader source of funds that could be collected easily and fairly. It would also put an end to the process that Richard R. Edmonds, editor of Florida Trend, describes as ''perpetually rutting about for odd fixes to our chronically narrow and volatile tax base.'' An income tax would elevate Florida to the status of a major state in providing for the needs of its citizens.

CHART: SOME SERVICES ESCAPE THE TAX

FINANCIAL SERVICES including home-mortgage and personal-loan interest, and checking account minimum-balance charges

COIN-OPERATED laundries

COIN-OPERATED dry cleaning establishments

MAINTENANCE assessments by property owners' associations

TRUCKING and warehousing charges, local and long distance

MASS-TRANSIT fares

GARBAGE collection and transportation

ATHLETES' fees for participating in sports events

PURSES paid to greyhound and racehorse owners

FEES for broadcast rights to sports events

REAL ESTATE commissions on primary residences

TRAVEL AGENTS' commissions

COLLECTIONS taken up at religious services

TAXICAB fares

BEAUTY and barbershop charges

CREDIT: JOHN PIRMAN CAPTION: NO CAPTION DESCRIPTION: See above; coconut tree.