The Republican tax overhaul could end the era of seven-figure coaches' salaries for college athletics, because of a proposal to eliminate a special deduction popular with university boosters.
Current federal law grants an 80 percent deduction on every dollar donated to a university for the right to purchase season tickets, usually to a school's home basketball and football games. This provision would be repealed under the tax reform plan unveiled by House Republicans on Thursday, leaving such contributions subject the much lower charitable donation.
Bill Carr, a former athletic director who now consults for college sports and provides executive search services for coaching hires, said this change could cripple donations to university athletic programs, draining resources for a host of investments, including salaries and the financial means to fire coaches mid-contract if doing so requires a hefty payout.
"It would have an enormous, suffocating effect upon giving," said Carr, whose career as an athletic director included eight years at the University of Florida.
College administrators are warning that dropping the tax provision could impact more than coaches salaries and the popular sports programs.
"For some colleges, this is an important source of revenue for athletic programs and helps fund non-revenue generating athletic programs and scholarships for student-athletes," said Liz Clark, director of federal affairs for the National Association of College and University Business Officers. "Elimination of the seating rights deduction could result in cuts to both of these areas.”
But that's not the only way the House Republicans' rewrite of the federal tax code could impact college coaching.
Their blueprint would slap a 20 percent excise tax on the nonprofit organizations, to be levied against salaries of $1 million or more paid, if applicable, to their five highest earners. This measure could impact private and public universities.
At Duke University, a private institution that pays head basketball coach Mike Krzyzewski more than $7 million annually, a 20 percent excise tax would cost about $1.5 million annually. At the University of Alabama, where head football coach Nick Saban earns $11 million, the tax would cost the school more than $2 million every year.
"As I read it, it covers public and private universities," said Elaine Wilson, a law professor at West Virginia University, although she said the bill was ambiguous and the Internal Revenue Service could interpret the proposal differently.
Philip Hackney, a law professor at Louisiana State University, said eligibility for the 20 percent excise tax would depend on how coaches are paid.
"It depends on where Saban is getting his money," Hackney said, explaining that if the Crimson Tide's head coach gets paid by some sort of nonprofit entity within the university, it would apply. If he's paid directly by the state, no tax might be owed.
In that case, public school athletic programs might gain a hiring advantage over their private counterparts, if there is no taxpayer uproar over paying still relatively high salaries to coaches.