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Editor: Paul L. Caron, Dean
Pepperdine University School of Law

Sunday, October 28, 2012

College Football Season Ticket Tax Break Costs $1 Billion/Year

NCAA LogoBloomberg:  Football-Ticket Tax Break Helps Colleges Get Millions:

Theodore L. Jones has held season tickets on the 43-yard line at Tiger Stadium, home of the perennial football powerhouse Louisiana State University, for almost 20 years. Because of the Baton Rouge lawyer’s lobbying in Congress in 1986, he and thousands of other fans get a tax break on donations they make as a condition for buying seats. The deduction Jones helped craft is now costing U.S. taxpayers more than $100 million a year in revenue that the Treasury can’t collect, based on data compiled by Bloomberg.

It is the sort of provision that Mitt Romney and congressional Republicans say they will target if they win this November’s elections. There are hundreds of write-offs in the tax code that lawmakers of both parties say could be restricted to help lower the deficit. ...

{T]he college seat-donation tax break may show how hard it would be to simplify the tax system. In this case, hundreds of universities -- many of them large, state- supported institutions -- and thousands of voters benefit from the provision. It is one of hundreds of exemptions around which entrenched interests have organized their own economies and which they would probably fight to retain.

No government agency has totaled the cost to taxpayers of the deduction for donations linked to college sports tickets. Neither has the 75-year-old Tax Foundation, a nonpartisan Washington research group.

Some U.S. colleges with the most popular teams in football, basketball and hockey take advantage of the provision to market higher prices to season-ticket buyers. They set the face value, then demand additional hundreds or thousands of dollars in what are designated contributions as a condition of sale. The pitch is that under U.S. law, the fans can write off 80 percent of the mandatory donations when they itemize deductions. Other schools don’t set specific donation levels. Instead, they award seat locations using point systems in which giving may be one element.

To obtain a sampling of the data, Bloomberg made public- records requests to the 54 state-sponsored universities in the six largest football conferences. ... The 34 that reported seat donations said they received $467.2 million in such contributions for the fiscal year ended June 30, 2011. Ohio State University collected the most, with $38.7 million. ... For those 34 schools, that means taxpayers could deduct as much as $373.7 million, or 80% of the total of donations. Based on a 28% tax rate ... that would reduce revenue to the Treasury by $104.6 million. ...

The total of lost federal tax receipts may be some multiple of that amount, because more than 1,000 university sports departments are eligible to demand such deductible gifts with ticket sales. Based on the Bloomberg sampling, it wouldn’t be unreasonable to estimate that giving related to season tickets may total $1 billion a year,

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A bit of history would show the difficulty of completely disallowing any such gifts. The IRS did make moves in that direction and then Congress stepped in to allow 80% only to be deducted. This was done under strong bipartisan support. Surely, regardless of party affiliation, retention of the status quo, or some variant of it, is something that Senators from Ohio, Michigan, Texas, North and South Carolina, Nebraska, Alabama, Oklahoma, Florida, Louisiana (need I go on) can all agree on.

Posted by: Bill Turnier | Oct 28, 2012 8:30:33 AM

This is one of my least favorite tax breaks, even though I am now a beneficiary of it. (Unlike Gov. Romney, I take full advantage of the charitable deductions allowed to me.) I thought that JCT must have provided a score for this idiotic provision, but a recently as July 25, they declined to provide an estimate. (JCX-62-12)

The provision was originally enacted as part of the Technical Corrections Act of 1988 (showing how short-lived the spirit of tax reform was after TRA86). The rationale was that "The proposal would eliminate otherwise unavoidable valuation controversies between the IRS and many individual taxpayers as to the proper treatment of payments to college athletic scholarship programs." (JCX-15-88) That is, of course, absurd since the proper treatment is to make the payments nondeductible since there is a clear quid pro quo. To add insult to injury, the 1988 act made the tax break retroactive to 1983.

JCT at the time listed the revenue cost as negligible. (JCX-32-88) I'd be surprised if it's as big as $1 billion per year, but it's clearly non-negligible.

Posted by: Len Burman | Oct 28, 2012 6:01:26 PM

I still cannot wrap my head around the idea that college sport events deserve tax breaks!

Posted by: Allan | Oct 28, 2012 8:39:54 PM