College Sports & Nonsense Tax Loopholes
A while back I got the chance to sit court-side at a Syracuse University basketball game. It was an awesome experience, and I wasn’t surprised when I learned the seats run upwards of $10,000 for the season – on the rare occasion the seats are even available. It turns out, though, that the ticket price isn’t really the price. The school requires a ‘mandatory donation‘ for the right to purchase those seats – the donation ranges from $10,000 for the ~90 courtside seats, to $250 for 2,000+ Section D seats. The actual ticket prices themselves are cheap, and all similarly priced regardless of which cohort you donate your way into.
At first glance it seems illegal – perhaps it’s a way to get around New York’s sales tax – but universities are exempt from sales tax – so why structure it this way? The answer is surprisingly straightforward: it is tailored to a purpose-built tax loophole. Generally you can only write off the difference between a donation you make and the value of an item you receive in return. A simple example: a $1000 donation that gets you access to a $200 dinner would qualify as a $800 tax-exempt donation. In the late 1980s the IRS added an exception – 80% of a donation that affords you access to buy tickets to university athletics is tax deductible.
I spent a few hours tallying up seats count and donation requirements for each section in the Carrier Dome for the men’s basketball team. The numbers add up pretty quickly: $1.7M tax revenue lost for New York State, and $7.9M in revenue lost for the feds. Again – that is for one year of SU Men’s Basketball. Football has similar donation shenanigans, and this happens at pretty much every school with a sizable athletics program.
It’s a pretty cut-and-dry example of an unnecessary complication in the tax code that advantages extremely few wealthy people, in an obfuscated way, to the detriment of the public. How has it lasted 30 years?