We have noticed some fuss recently regarding the NFL’s tax exempt status. Some have decried how the NFL rakes in billions of dollars in revenue annually yet pays no income tax. They complain of Roger Goodell’s $30 million dollar salary as evidence of misplaced tax policy – even a US Senator has taken up the issue. Is there anything to this argument that the NFL is taking taxpayers for a ride?
It appears not. The NFL is a tax exempt business entity organized under IRC 501(c)(6) (26 U.S.C. § 501(c)(6)), dating back to legislation passed in 1966. That statute provides for an exemption of “business leagues, chambers of commerce, real estate boards, boards of trade, and professional football leagues . . . , which are not organized for profit and no part of the net earnings of which inures to the benefit of any private shareholder or individual.” Under Reg. 1.501(c)(6)-1, a business league for purposes of IRC 501(c)(6) is an association of persons having a common business interest, whose purpose is to promote the common interest and not to engage in a regular business of a kind ordinarily carried on for profit. Its activities are directed to the improvement of business conditions of one or more lines of business rather than the performance of particular services for individual persons.
The NFL, then, is a form of trade association set up to promote the interests of its members. And the NFL does not make the aforementioned billions. Rather, that money is made by the individual NFL teams, who in turn pay taxes. According to the NFL’s most recent available Form 990, the league had revenues in 2011 of $255,332,000, the vast majority of which was due to dues and assessments from the teams. Expenses far exceeded revenues, meaning there would be no taxable income even without the exemption.
Moreover, under Reg 1.501(c)(6)’s definition it is hard to imagine a more effective trade association than the NFL at “promot[ing] the common interest” of its members. The 111 million viewers of this year’s Super Bowl is a testament to that. Moreover, the NFL’s incredible success in promoting the sport has resulted in the massive revenue figures cited by the opponents of the league’s tax exempt status, which in turn results in increased tax revenue to federal, state and local governments. Perhaps the critics of the NFL’s 501(c)(6) status also want to revoke the anti-trust exemption contained in the 1966 legislation, which has resulted in the modern NFL and in turn the Super Bowl? We think not.