Editor’s Note: I was recently a panelist in a discussion on the NFL League Office’s tax empt status. This is the piece on the panel by Fred Stokeld that was published in Tax News.

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November 6, 2014

Sports Leagues Don’t Need Tax Breaks, Panelists Say

Fred Stokeld  

Giving tax breaks and other financial help to sports leagues like the National Football League and sports teams does not make sense in light of those organizations’ profitability, according to several panelists at a November 5 program in Washington.

Giving tax breaks and other financial help to sports leagues like the National Football League and sports teams does not make sense in light of those organizations’ profitability, according to several panelists at a November 5 program in Washington.

Phillip Hackney of the Louisiana State University Law Center explained that to be exempt as a business league described under section 501(c)(6), an organization must operate in support of a line of business and not operate for a particular brand. The NFL, he said, operates for the benefit of its members and a particular brand rather than the interests of football in general.

“We see the way the NFL has been able to operate fairly effectively in getting the things that it wants,” Hackney said at a program sponsored by the Exempt Organizations Committee of the District of Columbia Bar Taxation Section.

But rather than just strip the NFL and other sports leagues of their tax-exempt status, all business leagues should lose exemption, Hackney said. “Business groups are able to organize with relative ease,” he said. “If you look at interest groups out there, business interests are well represented. And because they’re so easily able to organize, I think they’re best able to use the tax exemption as a benefit for their interests.”

Another option would be to consider imposing a net investment income tax on business leagues, according to Hackney.

But Carlos Alvarenga of Lumis Partners said the NFL’s exempt status is a minor issue when compared with tax breaks, loans, and public funding used to pay for stadiums and other sports-related projects at the state and local levels. For example, he said, Hamilton County in Ohio pays about $23 million in debt service for the Cincinnati Bengals stadium — about 11 percent of the county budget — while the state of Minnesota has forked over approximately $506 million to help pay for the new Vikings stadium.

“Their communities are really subsidizing fantastically profitable businesses,” Alvarenga said. “It seems to be a bad idea. I don’t think anyone’s tax money should be used to pay for a stadium or a skybox or VIP lounge for anyone that wants to go see a game. That doesn’t make any sense.”

Krista Jenkins of Fairleigh Dickinson University cited a national survey  conducted late last year by Fairleigh Dickinson’s PublicMind that found that 69 percent of respondents oppose using public funds to build and support stadiums for NFL teams and 71 percent oppose using tax breaks to attract or keep a team. The survey also found that 69 percent of respondents did not know the NFL is tax exempt, she said.

Harold Hancock, majority tax counsel for the House Ways and Means Committee, noted that proposals to end sports leagues’ exemptions are appearing on Capitol Hill. The Properly Reducing Overexemptions for Sports Act (S. 1524 ), introduced by Sen. Tom Coburn, R-Okla., would eliminate the language in the code that allows an exemption for professional sports leagues, although exemption would still be possible for leagues with $10 million or less in gross receipts. An identical bill (H.R. 3965 ) has been introduced in the House by Rep. Jason Chaffetz, R-Utah.

The tax reform discussion draft  circulated by Ways and Means Committee Chair Dave Camp, R-Mich., includes a proposal similar to the Coburn and Chaffetz bills except there is no $10 million gross receipts exception, Hancock said. Also, a bill (S. 2884 ) authored by Senate Finance Committee member Maria Cantwell, D-Wash., would bar exemption for any league with a club or franchise with the name “Redskin.” (Prior coverage .)

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Posted by Carlos Alvarenga

Carlos Alvarenga is the Executive Director of World 50 ThinkLabs and an Adjunct Professor at the University of Maryland's Smith School of Business.

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