Taking Away the NFL’s Tax-Exempt Status Doesn’t Do Anything
September 25, 2014
It has not been a good month for professional football. A recent spate of domestic violence incidents has called the moral leadership of the National Football League into question. In addition, concerns about the Washington Redskins’ team name remain a steady source of bad press.
In this climate, some members of Congress, upset over the NFL’s recent moral failures, have turned to the tax code for ways to express their feelings. (And of course, what better way is there to communicate our feelings about violence and treatment of ethnic minorities than tax legislation?)
Specifically, calls have renewed for the NFL to lose its tax-exempt status. The NFL is, under current law, a 501(c)(6) organization. That is a designation in the Internal Revenue Code that includes most guild-like organizations. As the IRS states:
IRC 501(c)(6) provides for exemption of business leagues, chambers of commerce, real estate boards, boards of trade, and professional football leagues (whether or not administering a pension fund for football players), which are not organized for profit and no part of the net earnings of which inures to the benefit of any private shareholder or individual.
Some of the members of Congress have played up the amount of the NFL's earnings. From the press release for Senator Maria Cantwell’s bill, which concerns itself with the Redskins’ team name:
“American taxpayers should not be forced to subsidize a $9 billion league that promotes a dictionary-defined racial slur,” said Cantwell, a member of the Senate Committee on Indian Affairs. “It’s time to end the special tax breaks for the National Football League.”
Here’s the problem with ending the “special tax breaks” for the NFL: it doesn’t do anything. It’s ineffective. It’s null. It’s a completely toothless strategy – as toothless as any game plan the Buccaneers have drawn up lately.
What Senator Cantwell did is a fallacy of equivocation – where the same word is used for two distinct concepts, and one treats those distinct concepts interchangeably. When the Senator speaks of a $9 billion league, the "NFL" is understood as an umbrella term to describe NFL league office, plus the 32 teams, plus some smaller organizations. When her bill strips non-profit status, though, it strips it from a specific legal entity: the league office only. "The NFL" as broadly imagined is a $9 billion league, but the actual legal entity that Senator Cantwell is trying to tax is not.
$9 billion is the money earned by the teams – which retain all of the actual profits from tickets and TV deals, and are taxable. The IRS has been correctly counting this money and taxing it for decades.
The NFL league office, on the other hand, spends approximately all of its money, mostly on payroll, which is taxed just like it would be anywhere else. The net income, after expenses, of the organization is tax free. But that doesn't really matter, because it has no net income to tax. By virtue of its design as a 501(c)(6), “no part of the net earnings inures to the benefit of any private shareholder or individual.” Making it a taxable entity would do approximately nothing.
If Congress is really interested in ending subsidies for the NFL in the federal tax code, its time would better be spent considering the use of tax-exempt municipal bonds to build team stadiums. This gives football teams a better form of financing than other, less-privileged businesses.