Nonprofits: The 'Good Guys'?
By Abigail HillerPublished March 10, 2015What does it mean to be a tax exempt nonprofit?
Nonprofit status and tax exemption are actually two different recognitions, and each has its own process. The application for nonprofit status takes place at the state level, while tax exemption takes place federally. An institution must be recognized as a nonprofit before it can be granted federal tax exemption.
There are, of course, certain rules that nonprofits must follow in order to be considered such. They are allowed to make money, but it must all go back into their organization. In other words, the companies may make a profit for subsistence, but making money it not their primary purpose.
The NFL is granted tax exemption under 501(c)(6) of the revenue codes. This is the classification intended for trade associations, groups which purport to create and promote a positive business environment for their particular trade.
Disagreement surrounds whether or not the NFL truly serves as a trade association. The organization supports a select number of teams, 32, rather than professional football as a profession. Additionally, the NFL controls television rights and merchandising.
Although the NFL is considered a nonprofit, its Commissioner enjoys a salary of 44 million
dollars a year. This has been subject to much criticism, as oftentimes questionable nonprofits have been seen to pay their chief executives superfluous salaries.
There is speculation that the NFL received tax exemption in the first place due to lobbying, and today their tax breaks amount to more than 10 million dollars a year.
Representative Jason Chaffetz of Utah, in reference to professional sports leagues, asserts that "These are not charities, nor are they traditional trade organizations. They are for-profits businesses, and should be taxed as such."
FIFA is another tax exempt nonprofit that has been subject to criticism. In this year's World Cup, they made about 4.5 billion dollars in revenue. Additionally, the Brazil Internal Revenue Service estimates that FIFA's tax exemptions cost the host country about 250 million dollars. FIFA also pushes out local vendors from their stadiums' surrounding areas, and brings in partner companies, such as Budweiser, to make business.
Ikea is also a nonprofit and tax exempt, under the mission of "further[ing] the advancement of interior design." To many critics, however, their motivation for being a nonprofit is business driven. Ikea donated only 1.7 billion dollars of its profits to a design school, and put the rest into other Ikea stores and savings, in what they called a "cushion for the future." The tax breaks enjoyed by the company allow it to pay 300 times less on taxes than its for-porfit counterparts - 3.5% on its 27 billion dollar in annual sales.