Closing a loophole that allows corporations to skirt millions in taxes seems like a no-brainer. On the other hand, nobody has ever accused Congress of exuding logic and reason. Yet 2017 might be different. Having failed in three previous attempts to remove the nonprofit statuses of professional sports leagues, Rep. Jason Chaffetz (R-Utah) is back at it with a new bill to force leagues such as the NHL to pay their share of taxes.
Chaffetz, a former BYU kicker, has introduced H.R. 296 to amend the Internal Revenue Code to exclude “major professional sports leagues” from qualifying as tax-exempt organizations. The proposed law would cover all professional sports leagues with annual revenues more than $10 million. It would not, however, touch the $1 billion in revenue that the nonprofit NCAA brings in each year.
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Currently, many professional sports leagues are classified as 501(c)(6) nonprofit organizations due to an oft-overlooked clause in a piece of federal legislation from the 1960s that helped the NFL merge with the AFL. This tax exemption places organizations such as the NHL, the PGA, and the USTA in the same category as local chambers of commerce, meaning that they do not have to pay federal (and most state) taxes; unlike a 501(c)(3) charity, they cannot offer tax deductions for gifts or donations.
The 501(c)(6) tax exemption only applies to the leagues themselves and not to individual teams, which are obviously for-profit corporations. Notably, the NBA has never sought tax-exempt status.
The skyrocketing revenue of the NFL and the $44.2 million salary Roger Goodell earned in 2012 served as the catalyst for the push to strip leagues of their nonprofit statuses when, in 2013, former Senator Tom Coburn (R-Ok.) introduced the PRO Sports Act to prohibit leagues from filing as nonprofits. Chaffetz then carried the torch on the issue in 2014 and 2015.
Their efforts, though, were arguably misguided since the NFL and other leagues typically run deficits while teams turn profits. For instance, despite the NFL as a whole generating more than $10 billion in annual revenue, the league office ran a $13.5 million deficit in 2014. (This may be the result of accounting tricks, as the NFL arguably used its tax-exempt status as a tax shelter for its clubs).
Rather than deal with the growing public and congressional scrutiny over its nonprofit classification and 501(c)(6) filings requiring executive salary disclosure, the NFL voluntarily relinquished its tax-exempt status in 2015. Major League Baseball did the same thing in 2008.
When the NFL was still tax-exempt, the Joint Committee on Taxation estimated that removing nonprofit status for all sports leagues would increase federal revenues by $109 million over ten years.
With the NFL, NBA, and MLB no longer claiming tax exemptions, the payoff for Chaffetz’s bill likely will be more symbolic than financial. The leagues currently enjoying tax exemptions, though, should heed this latest shot across the bow from Congress.
Chaffetz is unrelenting in his pursuit of this law, and for the first time he is armed with a completely Republican-controlled government. Rather than face the impending negative PR, leagues such as the NHL would be smart to vacate their nonprofit statuses, and hire accountants to keep Uncle Sam from their revenue the good old-fashioned way. Besides, it’s not like the sports world doesn’t have plenty of other ways to suckle at the public teat.
