Uncertain Fate for Sports Lovers' Tax Break | AccountingWEB

Uncertain Fate for Sports Lovers' Tax Break

By Teresa Ambord

College football fans probably call it the ultimate win/win. Schools need massive amounts of money. Some season ticket holders are willing to pay hefty prices to ensure those tickets. The high prices aren't optional, but because they're treated as donations, ticket holders get whopping tax deductions. Win/win/win . . . lose.
Bloomberg news reports that based on their calculations, those tax deductions cost the rest of us more than $105 million a year in tax revenue that the Treasury can't get its hands on. Yet.
Today's deduction - which originated with the Revenue Act of 1950 - is partly credited to the work of Theodore L. Jones, a Baton Rouge attorney and die-hard fan of the Louisiana State University Tigers. Jones has been a season ticket holder (on the forty-third yard line) for nearly twenty years. When the Tax Reform Act of 1986 was being hammered out, the beloved sports ticket tax deduction became a target. That's when the LSU athletic director enlisted the help of Jones. Thanks to Jones' relentless lobbying of Congress, the tax break survived. 
At the time, the deduction wasn't considered to be a great loss to the Treasury. In fact, in 1988 Congress' Joint Committee on Taxation calculated it would cost the country less than $500,000 a year in forgone revenue. That's a far cry from the possible $105 million estimated by Bloomberg, and yet it may be well below the actual total.
For this year, the Joint Committee on Taxation estimates that charitable deductions to education as a whole are costing the Treasury $5.7 billion. But the data doesn't isolate the lost revenue attributable to sports seat donations, which is why Bloomberg attempted to get an idea just how much this deduction is really costing us. 

How much are tickets going for?

For Theodore Jones, now age seventy-eight, his LSU tickets on the forty-third yard line (thirty-four rows from the field) were originally passed on to him by a family member who died. Each ticket costs him $410, plus a $950 donation per seat. He also has two other seats near the ten yard line, which also cost $410 each, plus a $900 donation per seat. So for tickets that would cost $1,640, he donates an additional $3,700. He is able to write off 80 percent (or $2,960). Because he's in the 35 percent tax bracket and he itemizes, he nets a tax savings of $1,036. 

Herb Vincent, a spokesman for LSU's athletic department told reporters that for other seats at LSU games, donations range from $210 for end zone seating to $3,000 for club seating. Going back all the way to when the deduction first became law in 1950, the donations have provided a primary source of funding for college athletics. According to Vincent, the money is used for scholarships, facilities, and other costs.
Whether the deduction is right or wrong, there's little debate that Jones' successful lobbying has helped provide immense funding for schools for over twenty years.
The Bloomberg Study
Not all schools set donation levels, but those with the most popular teams capitalize on the public's desire for prime seats at the games by jacking up season ticket prices. They establish the face value and then expect donations totaling hundreds of thousands of additional dollars. Of course "donation" implies voluntary, but the extra money is actually conditional to the availability of tickets. Even so, by law, fans who pay enough are able to write off 80 percent of the donation, provided they itemize their tax returns. 
To narrow down the lost revenue attributable to sports ticket donations, Bloomberg looked at thirty-four schools combined. Those schools reported receiving $467.2 million for the fiscal year ended June 30, 2011. Here are the top three:
  1. Ohio State University with $38.7 million. 
  2. LSU with $38 million.
  3. The University of Texas at Austin with $33.9 million.
That translates to tax deductions of nearly $374 million (80 percent of the $467.2 total). Assuming all the donations are actually deducted by taxpayers, and applying the 28 percent tax rate, that reduces revenues by nearly $105 million each year. 
Again, $105 million is probably a very modest estimate. Andrew Zimbalist, an economist at Smith College in Northampton, Massachusetts, told reporters it wouldn't be unreasonable to assume that donations related to sports tickets are close to $1 billion per year. That's because, according to Zimbalist, there are more than 1,000 university sports departments that can legally demand tax deductible donations for ticket sales. 
Both Republicans and Democrats say the tax code has hundreds of write-offs that could be eliminated or curtailed in an effort to reduce the growing deficit and bolster the economy. Kevin Brady, a Texas Republican and a senior member of the House Ways and Means Committee, told Bloomberg that although this deduction hasn't been targeted specifically, it could be: "We need to look at everything. It's important, vitally important to somebody, but the overall goal is still: How do we create that pro-growth tax code?" 
An obvious problem with curtailing the deduction is that so many colleges and universities rely heavily on the donations, which means they aren't going to give in without putting up the best fight they can muster. Since a large number of the schools affected are state colleges and universities, the alumni form a large voting bloc who will join the fight.
Regardless of who's in the Oval Office, some members of Congress are running the numbers and may soon take aim at eliminating a beloved deduction. 
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