When was the last time you read How the Grinch Stole Christmas? Maybe last night to your child, maybe last Christmas, maybe 20 years ago when your mom read it to you, or—although I certainly hope not—maybe never. Whenever it may have been, most of us know the story line. The Grinch, with a heart “two sizes too small,” looks down upon the Whos in Whoville and is envious of all the fun they seem to be having. He heads down to town on Christmas Eve to steal all their presents and goodies from under their trees. What he ends up realizing is that theft did not ruin Christmas and he too would like to be as happy as the Whos. His heart grows three sizes, he ends up returning all their presents and is welcomed into the community.
So, you ask, what does this have to do with sponsorship? Recent developments may lead the federal government to apply UBIT more broadly to nonprofit sponsorship revenue (read more here). Sounds like the Grinch to me! more
Amid all of the tribulations brought on by a bad economy, nonprofits and their corporate partners certainly don’t need one more. But recessions impact governments too, and can cause them to look long and hard for ways to generate additional revenue to replace tax dollars lost.
So it shouldn’t surprise that the U.S. government is raising the specter of taxing some sponsorship revenue. Specifically, the Congressional Budget Office issued a paper last month titled “Tax Preferences for Collegiate Sports,” which can be downloaded here (http://www.cbo.gov/doc.cfm?index=10055). The document suggests that Congress consider reclassifying certain types of income derived from athletic programs as subject to unrelated business income tax, including income from corporate sponsorship. The justification for doing so is predicated mostly on the commercial nature of sports programs at many universities and the loose connection between those programs and the schools’ educational mission (unrelated business) combined with the significant benefits that accrue to the sponsors.
Although the CBO’s suggestion has many logical underpinnings, there are a number of reasons why it should raise real concern among all nonprofits and their corporate partners. For those outside of colleges and universities who may view this paper as irrelevant to them, let us remind you that the movement to scrutinize all nonprofit sponsorship revenue in the ’90s began with a single examination into the sponsorship revenues of the Mobil Cotton Bowl college football game. A few members of Congress might very well read this latest report and seek to apply its reasoning to sponsorship activities of zoos, museums, charities, etc.