The Other View on the NFL’s Tax-Exempt Status
National headlines have popped up everywhere lately in response to the revelation that the NFL paid Commissioner Roger Goodell a salary of $29.5 million in 2011. The knee-jerk reaction from a lot of NFL fans has been this: if the NFL can afford to pay Roger Goodell so much, then those greedy corporate giants definitely should not receive tax-exempt status. After all, Goodell’s gargantuan salary is way more than the second highest salary from a non-profit CEO and greater than double the average yearly compensation for CEOs of Fortune 500 companies. You don’t need to be an NFL fan to know that professional football in America is big business that creates a huge profit. The National Football League generates $ 9.5 billion in revenue each year, and Superbowl XLVIII alone has generated somewhere in the ballpark of $300 million in ad revenue. With such a high volume and velocity of money involved, it’s easy for individuals who lack a basic understanding of the federal tax laws to overlook the fact that the NFL qualifies for tax-exempt status because its structural composition meets the stipulations of the federal tax law. The NFL, as far as anybody is concerned, is a not-for-profit entity.
You Don’t Have to Be a Charity to Be Tax-Exempt
The NFL is clearly not a charity. The multi-millionaire and billionaire owners aim to make money, but you don’t have to be a charity to have tax exempt status. Charities are exempt under 501(c)(3), which is different than the NFL’s status as a 501(c)(6) non-profit organization. The federal tax laws allow exemption from income tax to “business leagues, chambers of commerce, and real estate boards of trade, or professional football leagues” that are not organized for profit. All of the entities listed have the purpose of maximizing the profits of other companies. The structure of the NFL is less like a corporation, and more like a chamber of commerce. There are no profits, no shareholders, and no publicly available stocks or interests to buy on the market – the only ones who have any member interest at all are the professional football teams that make up the NFL. The league’s primary purpose is to maximize revenue and profits not for itself, but for each of its 32 teams, by promoting the buying and selling of services and goods (in this case it’s mostly TV rights) for the specific industry of professional football.
The Revenue Brought in by the NFL Is Taxed at the Team Level
It is not the case that the revenue generated by the NFL goes completely untaxed – in fact, the opposite is true. Any revenue that the NFL generates is divided evenly and distributed to the member teams. The individual teams then pay income taxes on their portion of the revenue they receive from the NFL. Roger Goodell also pays income taxes, and so do all other NFL executives. His salary is taxed according to his income bracket just like everyone else. If the teams think that Goodell is valuable enough to pay him a $ 29.5 million salary, they have a right to do it.
The IRS Taxes Profits, Not Assets
Whether the exemption is justified or not has been a controversial issue for years. Senator Tom Coburn has proposed legislation to end the tax-exempt status for the NFL because they are not like a chamber of commerce that promotes a trade in general, but rather they are promoting the NFL brand. Also, Coburn claims that the NFL lobbied to make NFL specifically exempt because they knew that they did not serve the proper purpose. However, the NFL truly is a non-profit. Even though it has over $1 billion in assets, it never holds onto any of the revenues it generates. Any revenue that the NFL receives is distributed to the teams, who pay the corporate taxes on their income. Furthermore, the NFL had a tax exemption before the words “professional football leagues” were codified as a specific exemption. Other professional sports leagues, and smaller football leagues such as the AFL, the now-failed XFL, or even the LFL have benefitted, or could benefit as long as they meet the qualifications. Anyone who thinks the NFL should to pay income taxes because they are profiting in spite of the taxpayers would do benefit from reading the relevant statutes.
[author] [author_image timthumb=’off’]https://www.ayarlaw.com/wp-content/uploads/2013/02/venar-about-sm.jpg[/author_image] [author_info]Michigan tax lawyer, Venar R. Ayar, founder of Ayar Law Group, holds ten years of experience as an accounting specialist and tax lawyer. He earned his Juris Doctor at the University of San Diego School of Law, receiving a Master of Laws in Taxation—the highest degree available in tax. His main focus has become Michigan tax resolution as well as IRS tax resolution, including individual and business tax matters; tax planning, tax compliance and white-collar criminal defense. His business background has helped him to become personable and understanding in his work. Representing clients before the IRS, Ayar’s practice and experience has proved him as an honest and dedicated leader in the realm of Michigan tax lawyers. Click here to contact your Michigan tax lawyer, Venar Ayar. [/author_info] [/author]