Ways and Means in early stages of tackling sports taxation

WASHINGTON — Republican and Democratic tax writers are interested in changing how collegiate and professional athletics are handled in the tax code — but they’re in the early stages of discussing what those changes might look like.

Members of the House Ways and Means Committee during a nearly four-hour hearing Tuesday expressed a desire to come to a consensus on legislation that could address a wide range of sports-related tax issues. They paid special attention to tax incentives for professional teams and the handling of name, image and likeness income for college athletes.

However, a bipartisan final product doesn’t appear likely soon.

“Sports have always evolved. Our tax code should keep up, and it should evolve in a way that supports communities, protects taxpayers, promotes fair competition, and gives young athletes every opportunity to succeed both on and off the field,” said Rep. Mike Thompson, top Democrat on the panel’s Tax Subcommittee.

“This has been an interesting hearing, Mr. Chairman, but what it tells me is we need a lot more,” Thompson told Ways and Means Chairman Jason Smith, R-Mo.

The hearing comes after the Supreme Court in 2021 sided with former student athletes in finding that the NCAA violated antitrust law with its rules on compensation for athletes. In the years since, money has flooded into collegiate sports, leaving young adults in an uncertain tax environment, often as they are handling significant amounts of money.

It also comes amid an environment of competitive tax incentives for professional sports teams, with cities and states utilizing tax-exempt bonds to woo these organizations to their region — a practice multiple lawmakers took issue with.

Former NFL player Sam Acho in his opening testimony urged the committee to draft legislation that could address the myriad of tax-related issues raised during the hearing, adding that the panel is “uniquely positioned to change college sports in a meaningful way.”

“The tax code wasn’t written for a 17-year-old college football player who’s coming into sudden wealth,” Acho said. “Does that mean that we should limit NIL pay? That wouldn’t solve the problem.”

Policy issues

For lawmakers like Smith, the impact of tax incentives on professional sports teams goes beyond solely a tax issue.

Smith in his opening remarks bemoaned the Kansas City Chiefs’ relocation from the Missouri side of the city to the Kansas side, citing the move as “corporate greed triumphing over community benefit.” The team opted to move to Kansas after a public financing proposal process involving both states.

Though the Chiefs’ plan hits home for Smith and his constituents, this is also a pattern happening across the country, “often without any public benefit,” Smith said.

“This decision, being made based on where the team can extract the most taxpayer dollars, reflects the reality that ultimately these teams, or at the very least their C-suite leadership, are more loyal to their bottom line than to their fans,” Smith said.

Lawmakers on both sides of the aisle took issue with professional sports teams’ reliance on these local incentives, with some pointing to the way that tax-exempt bonds require state and local governments to search for other sources of revenue as they fund stadium construction projects.

Another point of concern is the taxation of NIL income and the tax code changes and financial literacy efforts that could be undertaken to mitigate issues.

These athletes don’t see taxes withheld from their earnings, and they’re considered self-employed, immediately plunging college students into complex tax situations, often with limited guidance.

Thad Madden, a former IRS employee and NIL tax consultant, said during his testimony that in recent years that he’s seen “more and more athletes leaving college with large tax liabilities and no current means of repaying it” due to the current tax landscape.

Lawmakers discussed the idea of some kind of mandatory withholding for student athletes as one potential way to address the issue, while also highlighting financial literacy efforts as a way to both ensure that athletes pay their taxes and to enable them to invest their money.

“There’s so much financial literacy that does not happen in so many places, and then to have so much money dumped on them, it’s great for them, but doesn’t usually last very long,” said Rep. Greg Murphy, R-N.C.

State of play

Sports-focused tax policy changes may be a long way off, but lawmakers are more imminently working to advance another package of legislation focused on collegiate athletes.

The hearing comes as lawmakers are striving for consensus on a college sports bill that would impose NIL regulations, with House GOP leadership revising its take on the legislation earlier this year.

However, that iteration of the bill was pulled from consideration after the Congressional Black Caucus and the NAACP connected the legislation to redistricting efforts in red states that took away some majority-Black House districts.

Senate Commerce Chair Ted Cruz, R-Texas, and ranking member Maria Cantwell, D-Wash., who wrote the Senate version of such a package, are open to conversations with House Democrats and Republicans about a path forward on the bill.

But lawmakers are already facing a packed legislative agenda in the remaining months of the 119th Congress, with GOP leaders balancing must-pass bills and White House priorities. As a result, it’s not clear whether a consensus will be reached by the end of the year.

Cruz, for his part, is hoping Senate Majority Leader John Thune, R-S.D., will bring the bill to the floor for a vote before the end of July.