Domestic abuse isn’t the only issue tarnishing the image of the National Football League.
The NFL’s critics have piled on by pointing out the billion-dollar enterprise’s nonprofit status, which puts it in the league of charities and other groups that don’t pay taxes, NPR reported.
The NFL is not alone, among sports associations, and even for-profit businesses that legally avoid U.S. corporate taxes, and in the process raise the ire of media, customers and politicians, who call such financial maneuvering unethical or unpatriotic, according to the Washington Times.
The National Football League, with an annual revenue of more than $9 billion, as Forbes reported, is a registered nonprofit filed under section 501(c)(6) of the tax code.
The section is reserved for trade associations, business groups, such as the U.S. Chamber of Commerce, and sports leagues. While the NFL, National Hockey League and Professional Golfers’ Association take advantage of the tax break, the National Basketball Association and Major League Baseball gave up their nonprofit status years ago.
Why are sports leagues given tax-exempt status?
NPR reported that the law dates back to 1942 “to help trade associations bolster local economies by promoting teams and filling seats at games.”
Yet, NPR continued, “critics say (the law) has outlived its original mission.”
And that mission has since been called into question.
A study by sports economist Brad Humphreys of the University of Illinois and professor Dennis Coates of the University of Maryland concludes that “professional sports generally have little, if any, positive effect on a city’s economy,” stated a University of Illinois press release. In fact, the researchers found that an average of 1,924 jobs are lost in the local economy when a professional sports team comes to town.
Another study by the same researchers published by the Chicago-based Heartland Institute reported that “the owners of franchises in monopoly professional sports leagues have used the real or implied threat of moving to another city to persuade state and local decision-makers and politicians to provide them with lavish stadiums or arenas at little or no cost.”
The ethics and rationale of the NFL’s tax-exempt status is up for debate. In the aftermath of the domestic abuse scandals and other problems, Congress is eager to retaliate by taking away its tax break, according to NPR.
Burger King took a public relations hit when it lowered its tax bill by moving headquarters across the border to Canada, a process called tax inversion. The process, described by Mike Patton of Forbes, involves a U.S. multinational company merging with a company in a tax-friendly country.
When many countries don’t impose a corporate tax, compared with the U.S. corporate tax rate of 35 percent, it’s a no-brainer why a business would make such a move. In the case of Burger King’s merger with the Canadian coffee and doughnut chain Tim Horton’s, the move will reduce Burger King’s corporate tax rate by nearly 10 percent, wrote Jon Hartley of Forbes.
But neither the public nor politicians like tax inversions. President Obama called the move an “unpatriotic loophole,” Forbes reported. The article explained tax inversions “shrink the U.S. tax base and reduce federal revenue, putting pressure on the federal deficit and debt.”
The Wall Street Journal estimates that the U.S. Treasury stands to lose close to $20 billion in lost revenue from corporate tax inversions.
On the other hand, Patton wrote in Forbes that it’s not about patriotism. It’s about economics. And the sooner Congress reforms its corporate tax structure, the sooner the tax inversions will decline and U.S. economy will prosper. Meanwhile, shrewd tax inversions, Patton argued, will bring money home to perhaps “build a new facility in America” or “hire (new) workers which would reduce unemployment and help the economy.”
So, corporate tax inversions may be smart financially, but are they ethical?
Knight Kiplinger, an economist journalist and CEO of Kiplinger financial media company in Washington, D.C., gave this response:
“The ethical stance for a U.S. company would be to stay and fight: Continue the battle for comprehensive tax simplification that would lower the top C-corp rate from 35 percent to 15 percent or 20 percent and be applied only to domestic earnings. In exchange, large U.S. firms should be willing to give up all of their industry-specific tax breaks, which enable many of them to pay little or nothing in U.S. corporate taxes.”