Games & Taxes
Posted: Wednesday, October 10, 2007 1:57 PM by Barbara Raab
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Notes from the field
By John Yang, NBC News correspondent
The German Chancellor Otto von Bismarck's adage that "the less people know about how sausages and laws are made, the better they will sleep at night" is never truer than when it comes to tax legislation. Writing tax law is an exercise driven by the fiscal math of making all the revenue numbers add up and the political calculus of getting the votes to pass the bill in Congress.
Consider the tax breaks for college sports stadium seating, the topic of tonight's "Fleecing of America."
In the 1980s, big colleges started the practice of limiting season tickets to fans who made up-front contributions to the program--the bigger the donation, the better the seat. Donors began deducting those contributions, arguing that it was to an educational charity. But in 1986, the Internal Revenue Service ruled that contributions tied to a "substantial benefit"--such as season tickets--weren't deductible.
But Congress just happened to be considering a major tax overhaul bill (which I was covering for the Wall Street Journal) and two lawmakers stepped up to protect the tax break and keep their favorite colleges--and their football fans--from being thrown for a loss: The late Texas Rep. J.J. "Jake" Pickle, a University of Texas alumnus and influential member of the tax-writing Ways and Means Committee, and the late Louisiana Sen. Russell Long, a longtime member of the Finance Committee and a graduate of Louisiana State University.
Lo and behold, when the tax reform bill emerged in its final form--hailed at the time as a major simplification of the code that closed loopholes--it included a provision that allowed for the full deductibility for donations in order to buy season seats at just two colleges: Texas and LSU.
The deduction was extended to all universities in 1988, but limited to 80 percent of the contribution.
A similar pattern played out when the IRS took a look at the millions of dollars that college athletic departments were getting from corporations for naming rights at stadiums. In 1991, the IRS proposed taxing that revenue, but reversed course after the NCAA protested. And in 1997 Congress amended the tax code to say that revenue from naming rights was part of a university's nonprofit educational mission, rather than unrelated business income, and not subject to taxation.
The IRS and lawmakers have long been skeptical of the tax-exempt status enjoyed by college athletics, which generates tens of millions of dollars in television rights and product licensing fees. But so far, college sports have had enough friends in Washington to avoid any big changes.
For more information:
Austin American-Statesman
Chronicle of Higher Education
