How the GOP's proposed tax plan could impact sports, especially Penn State

Rutgers Penn St Football
Tax write-offs on luxury seating in college stadiums could be at risk with the GOP’s new tax plan.

While the federal tax plan the GOP released Thursday prompted considerable discussion about the proposed elimination of deductions for mortgage interest and state taxes, two changes that could significantly alter the sports landscape went largely unnoticed.

The House Republican plan would abolish the deduction that allows college sports fans to write off 80 percent of the donations they’re required to make before purchasing season tickets or luxury seating.

The proposal also would impact professional sports, making it illegal for state and local governments to issue tax-free bonds for the construction of sports stadiums and arenas.

Under pressure from Congress in 1988, the Internal Revenue Service ruled that those seat-licensing fees – which, for example, generated $30 million for the University of Texas two years ago — can be considered charitable donations to educational institutions.

“[If this plan were to become law] I’m sure you’ll hear universities moan and wail about how this will reduce the amount of money flowing to athletes and all the great educational benefits they receive,” said John Colombo, a tax-policy expert at the University of Illinois Law School.  “But if someone wants a sky box at Alabama, they will pay the going rate, deductible or not.”

At Penn State in 2017, a 10-year lease on one club seat at Beaver Stadium, for example, required a $10,045 license fee, according to the university’s website, which prominently promotes the 80 percent deduction. Officials there did not immediately respond to a request for comment.

The House Republican plan would abolish the deduction that allows college sports fans to write off 80 percent of the donations they’re required to make before purchasing season tickets or luxury seating.

In 2015, President Obama advocated unsuccessfully for the elimination of tax-free bonds in stadium building, which some deride as “welfare for billionaires.” Since 2000, 36 stadium projects were financed that way, costing the federal government, according to a Brookings Institute survey, $3.7 billion in lost revenue.

This isn’t the first time the seat-licensing deduction has come under attack. In the 1980s, the IRS moved to disallow them after deciding the fees weren’t donations but premiums required by the schools.

But after intense lobbying by several powerful athletic directors, who warned of a “devastating effect” on college sports, Congress approved the 80 percent deduction.

Colombo predicted that, if enacted, colleges such as Alabama, which has a waiting list of more than 25,000 for football season tickets, likely would devise an alternative method to extract revenue from the premium seats in their sports facilities.

“I seriously doubt the lack of deductibility is going to cause Alabama to lower prices for their seating preferences,” Colombo said.

“There will be some administrative pain. Athletic programs will probably need to break out the costs of such seating rights from other payments and set a value for them. … Charities already have to do that. If a charity sponsors an auction, it has to value the items and let participants know that payments up to the value of the item aren’t deductible.”