The money generated by all your Tar Heel, Wolfpack and Blue Devil hats, shirts and coffee mugs funds scholarships for students at your favorite university.
Now Senate Republicans want some of that money to help pay for tax reform.
Ordinarily, nonprofits don’t pay federal taxes on their income – and that includes most colleges. But under the Senate’s tax bill, royalties generated by nonprofits based on their names and logos will be taxed. It could be a large hit to universities with popular athletic departments that generate lots of money through merchandise sales — like the Triangle’s ACC schools.
The University of North Carolina-Chapel Hill generates several million dollars in licensing revenue every year. In the most recent fiscal year, UNC had $3.5 million in net revenue.
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If that money were taxed at the new corporate rate of 20 percent, the federal government’s cut would be more than $704,000.
The government expects to collect $2 billion over 10 years with the provision.
Licensing is big business, and schools are determined to both protect and control use of their various logos, trademarks and name. Colleges made $348 million in royalties in 2016, according to the International Licensing Industry Merchandisers’ Association.
“College and universities rely on a lot of revenue streams other than tuition and state appropriations to help make up the gap as they need to cover the expenses of providing higher ed and pursuing academic and research missions,” said Liz Clark, the director of federal affairs at the National Association of College and University Business Officers. “Revenues that a college or university would have directed to student scholarships or academic mission are being redirected to the federal treasuries.”
UNC-Chapel Hill has a director and an associate director of trademarks and licensing and an agreement with IMG College Licensing. Revenue collected through licensing — more than $17.2 million in the last five years alone — goes to need- and merit-based scholarships at UNC.
N.C. State established its trademark office in 1982. Revenues from licensing of its Block S, Tuffy and other logos goes to athletic, merit and study abroad scholarships and need-based financial aid programs.
It’s not just powerhouse programs that sell merchandise — or count on the revenue. IMG represents more than 200 colleges, universities, conferences, bowls and the NCAA.
Boise State, which has developed a national brand name in football but plays in the Mountain West Conference, has 281 licensees that reported sales in 2016, generating more than $750,000 in gross royalties for the university. Boise State uses the money to fund student scholarships and athletic programs.
Three-quarters of the sales are for apparel.
“This can be a big revenue stream for institutions. It’s a revenue stream for small and large institutions,” Clark said.
In order to generate the same revenue, colleges could increase the cost of their licensing fees — which, in turn, would likely lead to higher prices for fans buying merchandise.
The Tax Cuts and Jobs Act, as the tax bill is known, passed the House last week, largely along party lines. No Democrats voted for the measure and 13 Republicans, including Rep. Walter Jones of North Carolina, voted against the bill. The provision about taxing name and logo royalties was not included in the House bill.
The Senate bill, which passed out of committee last week and could be up for a vote shortly after Thanksgiving, needs just 51 votes to pass. The Senate and House would then have to merge their two versions into a new bill, which would have to pass both chambers.
The bills reduce the personal income tax rates, double the standard deduction for individual and joint income-tax filers and lower the corporate tax rate to 20 percent, a move intended to spur economic growth. In order to pay for some of the moves — the bills would still add $1.5 trillion to the national debt over the next 10 years, though Republicans say economic growth will help pay for the package — Republicans have added several measures to raise revenue.
“If I could wave a magic wand, I would take everything and pour it into rate reduction and not restore deductions,” said Rep. George Holding of Raleigh, a member of the tax-writing Ways and Means Committee. “You can make a good case for any of these deductions. But I can make a better case for eliminating all of them, pouring it into rate reductions across the board to help economic growth and the economy.”
One or both of the bills contain provisions that concern higher education officials, including eliminating the income tax deduction for student loan interest, taxing graduate students on the value of tuition waivers, an excise tax on some private school endowments and eliminating the deduction for donations related to season tickets.
“If it all passes, it’ll be hundreds and hundreds of millions of dollars a year in losses to college athletics,” said Tom McMillen, the president and CEO of Lead1, a membership group for college athletic directors.
McMillen said fewer athletic department dollars will lead to fewer opportunities in nonrevenue sports or Olympic sports. He said he believes the final bill could water down some of the provisions, especially as schools lobby their lawmakers about the possible impacts of the bill.
“We have been encouraging colleges and universities to assess the potential impact and to communicate what enactment of these bills would mean to them, explicitly,” Clarke said. “How they would need to change their academic offerings or determine where they would find the revenue they need to make up for this tax.”
Brian Murphy: 202.383.6089; Twitter: @MurphinDC