Friday Thoughts on the OBBB Act

It’s Friday, and it’s time for me to conclude my posts for the week on the House’s budget reconciliation bill. Yesterday, the House passed a slightly pared down version of the Ways and Means Committee’s draft bill. There’s still plenty of time for it to be tinkered with, giving me a sliver of hope. Yet, I suspect members of Congress couldn’t care less about my gloss on the matter, especially when it comes to the insanity of the endowment tax. But here we are.

Today, I thought I would mention another provision affecting nonprofits, especially universities. So, as you may be aware, under current law, nonprofit entities typically do not pay a tax on royalties from the sale or license of any name or logo of the nonprofit. But the bill, as proposed by the House, would require nonprofits to pay tax on these royalties—at the corporate tax rate of 21%, generally speaking. That’s because the new bill classifies gain and royalty income from these sales or licenses as “unrelated business taxable income.”

Now, universities have been subject to unrelated business income taxes for some time, such that it hardly seems controversial. But this tax will certainly hurt universities’ bottom line (and likely drive up the price of sports apparel, etc.). If you’re a college sports junkie like me, you probably know that sales and licenses of names and logos for sports apparel are lucrative. But are they truly “unrelated business income”? I think there’s an argument that they are not (which goes something like this: athletics are so baked into collegiate culture such that taxing receipts derived from licensing university marks is purely punitive, etc.). But even if you disagree, the fact that it will pair with a ratcheted-up endowment tax means that private universities, in particular, will more acutely feel the effects of this tax. Together, these taxes effectively deem universities to be for-profit corporate entities.

I don’t know, folks. To me, the difference between a university and for-profit corporation couldn’t be more stark. What are we doing here?!

Christopher J. Ryan, Jr.

Indiana University Maurer School of Law