Fans from every part of the country make it a tradition to go to their school’s football games and many purchase season tickets to see their team play each and every home game. For fans who are already season ticket holders, you probably know that most schools require a donation to become eligible to purchase tickets. But you may not know it is because of a 1988 law passed by Congress that made those donations tax deductible.
Under the 1988 law, “taxpayers may deduct 80% of payment for the right to purchase seating at a collegiate sports event — though not a professional one — as a charitable contribution. Direct payments for game tickets, food, parking and other goods aren’t deductible as charitable contributions….”
This law reversed an IRS ruling that found that season tickets are a “substantial benefit” and do not qualify as a charitable contribution. To the chagrin of their rivals, for a time only contributions to the University of Texas and Louisiana State University (LSU) were eligible for the preferential tax treatment thanks to influential home state lawmakers on congressional tax law writing committees. The deductible status of seating right contributions was then extended to all universities and reduced from 100 percent to 80 percent. According to a non-profit law attorney, “[Congress] just plucked the 80% figure out of the proverbial air.” According to one analysis of 34 major programs, these subsidies cost the federal government $100 million in lost revenue annually.
Season ticket donations are not the only tax deductible component of college football transactions. Universities across the nation finance the construction or renovation of their stadiums partially through the sale of luxury boxes and preferred seating, which also fall under the 80% deduction. “Suites — usually featuring 16 seats, catered food, televisions and high-speed Internet access — are priced at $50,000 to $90,000 a year,” says the WSJ. An oil executive who leases a luxury suite at the University of Texas stadium defends the provision, stating “that money is used to further many educational activities,” not just football.
In essence, there are two sides of the debate. One side says that the 80% tax deduction helps the school fund educational activities that the school would otherwise miss out on, capitalizing on the popularity of college football. The other says tickets, or luxury suites, should not be deductible because they are purchasing a valuable asset.
However, there is no debate about federal tax law impacting the way season ticket sales are structured, just like so many other transactions that are shaped based on Congressional preferences rather than economic efficiency and growth. These are the kinds of nooks and crannies scattered throughout the tax code that have built up over many years that must be seriously evaluated. Is this provision good policy or the legacy of two lawmakers legislating as Texas and LSU fans decades ago?