The Chronicle of Higher Education is reporting today that the Ways and Means Committee is looking at whether certain college sporting activity income should be taxed as unrelated business income. See B. Wolverton, House Committee is Looking into Whether Some College Sports Revenue Shuld be Taxed, Three College Officials Say (March 10, 2006). The players may not be paid, but Ways and Means is questioning whether colleges are truly sponsoring and promoting amateur competition or just another big-time, big money entertainment extravaganza. The committee is essentially asking the same questions it asked several months ago about charity hospitals. See B. Wolverton, House Committee is Looking into Whether Some College Sports Revenue Shuld be Taxed, Three College Officials Say (March 10, 2006).
According to the Chronicle article, the NCAA issued a statement that “We are organized and operated exclusively for educational purposes.” Tell that to the millions who will be placing their bets as March Madness approaches. No doubt the NCAA is already preparing those clips of student athletes hard at work on their studies.
If events unfold as they have in past battles over taxing otherwise exempt income as unrelated business income, we can expect to see some novel approaches by colleges to protect the lucrative sports revenue stream. For example, TV contracts and sponsorships would be subject to tax…..unless every athlete on the team maintains a B average and graduates. Will calculus be written into the tax code as a required course or will athletes still take courses like the history of the automobile, human sexuality—a course that many could teach, and basket weaving for geeks?
Or the colleges might fight back, asking if they can sponsor the gambling pools. That way they could withhold on the winnings that we bet largely go unreported. Why pay tax yourself when you can shift it to the fan base?
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