Surprisingly, These 3 Well-Known Companies Are Non-Profits
When you think of non-profits, names like The Red Cross or Habitat for Humanity come to mind. You certainly don't think of the National Football League, but the NFL (along with the National Hockey League and the Professional Golfers Association) is a tax exempt 501(c)(6) organization -- as are some other business that might surprise you.
While the word "non-profit" brings up mental images of charities helping others, and doing good deeds, in reality, non-profits don't need to be charitable. That is legally true, but it can be argued that the NFL and some big businesses claiming non-profit, tax exempt status are taking advantage of laws not written for them.
"Cancer research. Tsunami relief. Golden retriever puppy rescue. Professional football. One of these things is not like the other," wrote Patrick Hruby in a recent opinion piece in The New York Times. "Thanks to a long-standing quirk in the federal tax code, however, the National Football League's main office enjoys nonprofit status similar to that of the Alzheimer's Association — even though the former may cause dementia, while the latter seeks to cure it."
Many likely share that sentiment, but before storming Congress to demand an end to this practice, it's worth examining how the NFL and two other surprise non-profits, qualify for the status.
The National Football League
To overly simplify it, the NFL is a tax free entity because it "is organized as a trade or industry association that is exempt from taxation under Section 501(c)(6) of the Internal Revenue Code, not Section 501(c)(3), which exempts charitable organizations," according to a league spokesperson's comments in 2013. Basically, the league is using a loophole created for actual trade organizations -- groups like the National Chimney Sweeps Guild -- and using it as a way to avoid taxes.
The rules apply to the league office, not profits made by individual teams. The distinction can be a bit murky though as the league is structured so that teams fund the league office, which collects revenues from things like TV deals and distributes those funds to the franchises. Once the money is paid to a team, it's taxable.
Still, the setup does allow the NFL (and the other sports leagues) to hold onto some money that would have otherwise gone to the taxman.
Senator Tom Coburn, an Oklahoma Republican, has supported ending the exemption for sports league and in 2012 produced a report that claimed "the NFL and NHL alone 'may' generate an additional $91 million annually for the federal government if his amendment passes and the leagues are no longer tax-exempt," according to ESPN. Congress's Joint Committee on Taxation had the number quite a bit lower and pegged it at $109 million over the next 10 years, according to the sports website.
IKEA, the chain of giant self-help furniture stores from Sweden, which is famous for making hard-to-put-together low-cost furniture, is a non-profit, and it does make some charitable contributions. The company does not exactly trumpet this status (I've visited their New Haven, Connecticut store countless times and had no idea) but it does cop to it, in a sense, in an FAQ on a website for its charitable foundation. The exchange goes as follows:
What's the relation of IKEA stores to the IKEA Foundation?
The Stichting IKEA Foundation is a Dutch charitable foundation, funded by the Stichting INGKA Foundation. The Stichting INGKA Foundation in the Netherlands owns INGKA Holding B.V., the parent company of IKEA.
It's explained a little further in the company's annual report, though the chain of ownership does seem unnecessarily complicated.The Stichting INGKA Foundation was actually created by IKEA founder Ingvar Kamprad and not everyone buys that his intent was to "create a better everyday life for the many people."
Mark Wilson, who created Philanthroper.com, wrote a piece for Fast Company headlined IKEA Is A Nonprofit, And, Yes, That Is Every Bit As Fishy As It Sounds. In it he, to put it lightly, questions whether the nonprofit designation is valid or merely an attempt by an owner who "is a publicly frugal man who despises taxes" to avoid paying them. The Economist wrote a very thorough piece in 2006 that raised similar questions, though the only thing that has changed is the size of IKEA's business.
The Green Bay Packers
Not all big businesses claiming non-profit status are doing it for questionable reasons. While the rest of the NFL's franchises -- and every other major U.S. pro sports team -- operate on a for-profit basis, the Green Bay Packers are a non-profit company owned by roughly 350,000 shareholders who receive "voting rights but no rights to profit from distribution," according to The New York Times. "Instead, any profits must be reinvested in the team."
And, while the NFL is an example of using rules not intended for you to your advantage and IKEA appears to be a lesson in tax avoidance, the Packers are a clever, but reasonable use of the law. The Packers are a non-profit owned by its fans. While the team may not be a charity in the traditional sense, it's hard to argue that the franchise isn't doing a lot of good for the people it serves. The organization's storied track record of community outreach includes a community foundation, which funds countless projects which benefit the community and extensive outreach involving players. The team also runs the Community Quarterback Awards, which recognize outstanding volunteers within the state of Wisconsin.
Though becoming a non-profit was a move to maker sure the team could not be sold and moved to a more profitable locale, it has become a mission the team's management and players have embraced.
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