NFL drops tax-exempt status to avoid 'distraction'
The NFL league office will relinquish its status as a tax-exempt business after more than 70 years, ending several recent controversies and misunderstandings about why such a wealthy enterprise even needed it.
Individual NFL teams had been taxable businesses, but not the league office, which was set up as a not-for-profit, tax-exempt business.
"The income generated by football has always been earned by the 32 clubs and taxable there," said a statement issued by Robert McNair, owner of the Houston Texans and chairman of the league's finance committee. "This is the case whether the league office is tax exempt or taxable. The owners have decided to eliminate the distraction associated with misunderstanding of the league office's status, so the league office will in the future file returns as a taxable entity."
In recent years, the league had been paying Commissioner Roger Goodell more than $30 million a year, raising more questions about why the league office should be tax-exempt. Members of Congress also have criticized it.
"As you know, the effects of the tax exempt status of the league office have been mischaracterized repeatedly in recent years," Goodell said in a memo to NFL clubs Tuesday. "The fact is that the business of the NFL has never been tax exempt. Every dollar of income generated through television rights fees, licensing agreements, sponsorships, ticket sales, and other means is earned by the 32 clubs and is taxable there. This will remain the case even when the league office and Management Council file returns as taxable entities, and the change in filing status will make no material difference to our business. As a result, the Committees decided to eliminate this distraction."
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Goodell added that "recently Congress has questioned whether sports league associations should, as a matter of federal tax policy, be tax exempt. We will notify interested members of Congress of this decision by NFL ownership."
Major League Baseball gave up its tax-exempt status several years ago and said the move was "tax-neutral." The NBA says it has never been a not-for-profit. The NHL and PGA Tour have had a similar tax-exempt status.
NFL spokesman Brian McCarthy previously pointed out to USA TODAY Sports that the league office probably wouldn't see much of a tax difference if it became a taxable entity. That's because it could deduct business expenses to reduce its tax bill and wouldn't have much of an income to tax. A recent NFL tax form showed that almost all of the league office's $255 million in revenue came from team membership dues.
"If the league office were taxable, it would be entitled to claim these deductions like any other business," McCarthy said in an e-mail in 2013. "In any given year the league office's expenses generally match its revenues."
VIDEO: NFL relinquishing tax-exempt status
Former Sen. Tom Coburn previously proposed removing these exemptions for pro sports leagues. If they were removed, it could generate $109 million in new tax revenue over 10 years, according to an estimate in 2013 by Congress' Joint Committee on Taxation.
Rep. Jason Chaffetz, R-Utah, also introduced legislation earlier this year that would eliminate tax exemptions for pro sports organizations with annual revenues of more than $10 million. Chaffetz and Rep. Elijah Cummings, D-MD, issued a statement Tuesday:
"We are extremely pleased with the decision from the NFL to waive its tax-exempt status," the statement said. "Congress has tried to tackle this issue before, but we made it one of our committee's priorities this year. It is rewarding to see such an important and positive step toward restoring basic fairness. We hope other professional sports organizations in similar situations will follow the positive example set by the NFL, and we look forward to rightfully returning millions of dollars to the federal treasury as a result. We thank Commissioner Goodell and the NFL for their leadership."
The NFL memo said the league office was first granted tax-exempt status by the IRS in 1942. "The IRS has repeatedly confirmed that status over the years," it states.
Follow sports writer Brent Schrotenboer on Twitter @Schrotenboer. Contact: bschrotenb@usatoday.com