When Happy Gilmore’s grandmother didn’t pay her taxes, she had her house seized and was forced to move to an oppressive nursing home.
When the PGA Tour didn’t pay taxes on any of its billion dollars in revenues or nearly $100 million in profit last year, well, nothing happened. That’s because the PGA enjoys tax-exempt status as a 501(c)(6) non-profit organization.
A 501(c)(6) is the tax-exempt category for industry and trade groups, like the U.S. Chamber of Commerce or the Natural Resources Defense Council, that promote an industry as a whole without supporting a specific brand. The PGA’s mission is “to promote the sport of professional golf of touring golf professionals.” And promote they do, to the tune of billions that add to their bottom line.
The PGA defends its non-profit status by pointing to its charitable contributions. According to the PGA’s tax forms, in 2016 the PGA brought in $1.28 billion in revenues, with nearly $500 million coming from selling TV rights. The PGA spent $1.2 billion in 2016, but only $40 million, or 3 percent, went to charitable activities. On the other hand, nearly half of the expenditures ($480 million) went to player prizes, and a whopping $20 million went to executive salaries. Sixteen executive members make more than $500,000, with the PGA Commissioner, Tim Finchem, bringing in a cool $4.7 million.
The PGA’s total profit for the year was $77.5 million, nearly twice as much as their charitable contributions. This untaxed cash adds to the $1 billion in net assets the PGA has accumulated with the help of avoiding $350 million in taxes (using a simple 35% rate).
The PGA almost lost their tax-exempt status last year. A provision to eliminate the tax-exemption for professional sports leagues was included in the Senate version of the tax reform bill. Feeling threatened, the PGA called on one of its all-time-greats to lobby Congress. 18-time major winner Jack Nicklaus was asked by PGA executives to lobby Congress to drop the provision. After phone calls and letters from Nicklaus, the provision mysteriously was dropped before the bill was finalized.
The non-profit 501(c)(6) status isn’t the only advantageous tax arrangement the PGA utilizes. Most of the PGA tournaments are organized as charities, which also confers non-profit status. An investigation by Outside the Lines in 2012 found that these “charities” only spent, on average, 16 percent on actual charity. That falls “far below the minimum 65 percent that charity watchdog groups say makes for a responsible charity.” One charity even lost $4.5 million by hosting the tournament, claiming that it was worth the investment for the publicity.
Yet another tax loophole is designed specifically for foreign players, which make up a significant part of the PGA tour. Typically, if someone is in the United States for more than 180 days per year, their worldwide income is taxable. But a 1986 provision helped foreign golfers avoid this tax. The Senator proposing the amendment stated, “At the moment, if you are in the United States over 180 days, you are taxed on your worldwide income. It is causing a number of athletes to be reluctant to come and play in our charity sports tournaments, where the money is raised for charity, because it counts toward the 180 days. This amendment simply says when they are playing here in a charity sports tournament, the days they are playing will not be counted toward the 180 days.” Per the last tax paragraph, every tournament in the United States is a charity. Very sneaky.
While Congress missed its chance to eliminate these loopholes during last year’s tax reform debate, a bipartisan duo is pushing the issue again. Senators Joni Ernst (R-IA) and Angus King (I-ME) introduced the Properly Reducing Overexemptions for Sports Act (PRO Sports Act) which would strip professional sports leagues of their tax-exempt status. This would mainly impact the PGA and the NHL (the NFL got rid of their tax-exempt status in 2015) and save taxpayers about $100 million over the next 10 years.
Touting the bill, Sen. King said that “Sports leagues like the NHL and the PGA Tour provide entertainment for millions of Americans, but that doesn’t mean these league-specific brands should be able to utilize Section 501(c)(6) of the tax code to be tax exempt. This bill would help close loopholes that allow leagues to boost their profits at the expense of taxpayers.” With a little more color, Sen. Ernst said “Professional sports leagues – which are raking in millions of dollars from television rights and membership dues – shouldn’t also be scoring a hole-in-one with their taxes.”
While the PGA will continue to use their myriad of tax advantages, taxpayers can only hope that Jack Nicklaus won’t successfully block Ernst and King’s bill from moving forward. It’s time for these loopholes to go home.