Calling Foul on Athletic Tax Credits

November 25, 2014

Looking to buy season tickets for your favorite college’s football or basketball games? Be prepared to spend more than you bargained for, because the biggest sports powerhouses require large donations in order to secure a season ticket. The benefit for these season ticket holders? The mandatory donations are 80% tax deductible.

History

Donations to sports programs in exchange for season tickets were initially considered charitable contributions and were entirely tax deductible. In 1980, the IRS attempted to tax ticket contributions, much to the chagrin of big sports schools. The argument was that the “mandatory payments weren’t charitable gifts to the universities…they represented the cost of securing a highly coveted season ticket.”

The big sports schools with the most to lose, University of Texas and Louisiana State University, successfully convinced Congress to leave them out of the new tax. Other schools charged that they should be exempt as well, and in 1988 Congress decided to allow fans “to deduct 80 percent of the cost of buying season tickets, including mandatory donations” for all sports programs.

Impact

Universities thus receive the donation tax free and the “well-heeled sports fan sitting court-side” gets more than one quarter of the required donation back from the government (80% of the top income tax rate–35%–is equal to 26%).

An analysis by Bloomberg suggests that tax breaks to just 34 major football programs are “costing U.S. taxpayers more than $100 million a year in revenue that the Treasury can’t collect” on about $374 million of donations. However, the full amount of the donations, when over a thousand schools are taken into account, could be closer to $1 billion a year, putting the revenue loss in the hundreds of millions of dollars.

There are serious problems with this tax break. Not only is the government losing revenue, but the loophole lends itself to a more complex tax code with specialized deductions for a relatively small group of people. Additionally, it is non-neutral tax policy: It is questionable to consider these donations “charitable” and eligible for deduction, considering they are both mandatory and given in exchange for a tangible good. If these donations are really just ordinary ticket sales disguised as “donations,” then they are given a distortionary, preferential treatment over other kinds of consumption that can’t look like charity to the IRS.

In order to boost revenue and simplify the tax code (i.e., discontinue special loopholes for small groups), Congress should eliminate deductions for sports ticket contributions.


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