Congressman Slings Another Rock at NFL's Tax-Exempt Status

Politicians have attempted to strip the multibillion-dollar league of its tax-exempt status for years.

The National Football League (NFL), which took in $9.5 billion in revenue last year, is classified as a 501(c)(6) "trade association of manufacturers" and thus not subject to taxation, a status it has enjoyed since 1942.

That could change if new Chairman of the House Oversight Committee Jason Chaffetz (R-Utah) has his way, though. The congressman announced legislation last week to strip the league of its tax-exempt status.

In a recent interview with CNN after the Super Bowl, Chaffetz asked, "Was that a nonprofit event going on or was that a for-profit venture? It's a for-profit venture. You tell people that the NFL is a nonprofit entity and they just start laughing and giggling. But it's not fair. If there's another side to that, then let the commissioner come in and make that case."

These thoughts were echoed in a press release from Chaffetz's office, which also calls into question the National Hockey League (NHL):

Professional sports organizations aren't fooling anybody. Organizations like the NFL and NHL are for-profit businesses making millions of dollars each year. These are not charities nor are they traditional trade organizations. They are for-profit businesses and should be taxed as such … Closing this loophole should be combined with closing several other loopholes in order to lower tax rates in a revenue-neutral manner.

The NFL's individual franchises are not tax-exempt, meaning that the large bulk of revenue, stemming from ticket sales, TV rights, and merchandise, is subject to taxation. Still, the league office's tax-exempt status has allowed it to avoid a reported $100 million in taxes over the past 10 years, according to a report from the Joint Committee on Taxation.

The league is not alone. The Association of Tennis Professionals (ATP), Professional Golf Association (PGA), and Ladies Professional Golf Association (LPGA) also benefit from this tax-exempt status. Major League Baseball (MLB) was once exempt but forfeited the status in 2007 when the IRS started requiring 501(c)(6) groups to disclose the salaries of executives making over $150,000. (It's for this reason we know NFL commissioner Roger Goodell earns $44 million a year.)

Chaffetz, who attempted but failed to pass a similar bill last year, picks up on the work of former senator Tom Coburn (R-Okla.), who fought for years to eliminate the NFL's tax exemption, and former House Ways and Means Chairman Dave Camp (R-Mich.), who proposed similar legislation last year.

Experts are skeptical that any meaningful progress will be made on the issue, however. Here's an excerpt from a Washington Examiner feature on the topic last month:

Sports lawyer Darren Heitner doubts such tongue-lashings will have much long-term effect on the NFL's popularity. "From a broad perspective, that scrutiny that comes up every so often is probably worth it if the league can save millions of dollars every year," he said. 

"I think that the politicians who are talking about doing this are really grandstanding," said Andrew Zimbalist, economics professor at Smith College. "I don't think there's anything substantial here. If they want to go after NFL profits, there's a much more direct and reasonable way to do that."

Neither Heitner nor Zimbalist believes the NFL would lose much money if it shed its 501(c)(6) status. "The NFL has very expensive accountants on retainer," Heitner said. "I think with a little ingenuity, it would be possible to show that not only does the NFL not make all that much money, but from the league's standpoint, potentially takes a loss."

Zimbalist agreed."If the IRS says to them or Congress says to them, 'You can't be a nonprofit anymore,'" he said, "what they would be able to do is simply distribute more to the teams or pay themselves higher salaries, and make any profits disappear from the central office. It would have no impact."