The National Football League said Tuesday it will end its tax-exempt status, squashing one of America’s most baffling corporate tax breaks and granting the mega-business more secrecy about its inner financial workings.
In a letter dated Tuesday to team owners and members of Congress, Goodell called the decades-old tax-exempt status a “distraction” that has “been mischaracterized repeatedly,” and whose end “will make no material difference to our business.”
“The fact is that the business of the NFL has never been tax exempt,” Goodell wrote. “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.”
Since 1942, America’s biggest sports empire has qualified as a 501(c)(6) non-profit, the same designation given to business leagues, trade groups and organizations like the American Medical Association. Central bodies for hockey and golf, the National Hockey League (NHL) and The PGA Tour, also file as nonprofits, because the tax code says they work to promote their industries, not as for-profit enterprises.
The NFL has defended its nonprofit status by pointing out all of its teams are for-profit entities, and the billions they make from TV contracts, tickets sales and merchandise are already taxed. Earlier this month, an NFL spokesman told The Washington Post that the league office “has always been a nonprofit because it does not engage in income-producing or profit-making activity.”
But congressional leaders have routinely questioned whether sports leagues deserve the tax break. “For every dollar that goes out in a case like this, that’s a dollar my constituents have to pay in income taxes,” said Maine’s independent Sen. Angus King last year.
The NFL is following a similar play by Major League Baseball, which opted to forgo its tax-exempt status in 2007. The National Basketball Association (NBA) and NASCAR both file as for-profit companies.
Just how much the NFL’s headquarters in New York will need to start forking over in taxes remains unclear. A congressional committee estimated the NFL would need to pay about $10 million in taxes, a drop in the bucket for a league where team revenues add up to nearly $10 billion a year.
But the NFL’s executives will gain cover from criticism over their paychecks. The league’s 2013 tax filing revealed that, besides Goodell’s $44 million, six other executives drew seven-figure salaries and 298 employees made $100,000 or more.
Some lawmakers on Tuesday celebrated the shift. Sen. Maria Cantwell (D-Wash.), who last year called for stripping the NFL of its nonprofit status because of its refusal to force the Washington Redskins to change the club’s controversial name, called it a “victory for tax payers, and a long overdue step.” She added, however, that dropping the tax break “doesn’t mean you can ignore the need for the NFL to abandon a racial slur as a team name.”
Not everyone was so congratulatory. Sen. Richard Blumenthal (D-Conn.) said in a statement Tuesday that the league’s “sacrifice of its tax-exempt status seems more like a PR stunt than a real gain.”