What does golf have to do with taxes? A lot, apparently.
The Senate probe of the controversial PGA Tour-LIV Golf merger hearing is underway today, with the Permanent Subcommittee on Investigations stating in an earlier letter that it would examine the proposed deal and “investment in golf in the United States, the risks associated with a foreign government’s investment in American cultural institutions and the implications of this planned agreement on professional golf in the United States going forward.” The purpose of the investigation is to also determine whether the PGA Tour can maintain its tax-exempt status as a 501(c)6 exempt organization. The Department of Justice also plans to investigate antitrust concerns surrounding the alliance.
For those unfamiliar, LIV is a Saudi-backed start-up golf tour. The PGA tour recently announced a proposed deal to merge with LIV in a sign of a “if you can’t beat ‘em, join them” mentality.
As CNBC reports, critics accuse the private investment fund backing LIV of “sportswashing” – using LIV and other sports investments to improve the image of Saudi Arabia and distract from its history of human rights violations.
As if it that doesn’t sound problematic enough, a deal that allows the Saudi ownership of the PGA tour will effectively mean American taxpayers will be subsidizing the Saudi government, as it will be making use of the favorable tax policies that apply to golf, as well as the PGA tour’s non-profit tax status.
In a letter to Congress from the PGA Tour’s commissioner Jay Monahan, the PGA Tour defended it’s tax-exempt status, “The PGA Tour and its tournaments will continue to operate as they do today, generating significant charitable and economic impact in the communities where they are played” and argues that the proposed alliance isn’t a merger, likening Saudi’s involvement to that of an investor in PGA golf.
Tax Loopholes
The merger isn’t golf’s first dip in tax controversy. Golf courses in America, particularly private courses, have long faced criticism due to their wasteful land use and alleged poor tax policy. For example, the Los Angeles Times recently reported on the “woefully” undertaxed site of last month’s U.S. Open Golf Championship – the highly exclusive Los Angeles Country Club. The article described the notoriously discriminatory club (which didn’t allow Jewish members until 1977 and only admitted its first African American member in 1991) as the “most expensive piece of undeveloped and privately owned land in the United States.”
Although the worth of the 313 acres of land that the L.A. Country Club sits on isn’t known, one estimate values it at $8 billion, making it the second most expensive piece of undeveloped real estate after New York City’s Central Park. Based on such valuation, the club should be paying some $60 to $90 million in annual property taxes, but instead pays a mere $300,000 according to reports. A 45-year old tax loophole can be credited (or blamed, depending on how you look at it) for these outrageous savings. California’s Proposition 6 wrote into the state’s constitution that golf courses can no longer be assessed based on their highest and best use (the factor property tax appraisals are typically based on – the use which yields the greatest monetary benefit given the size and location of the property). In 1978, Proposition 13, which allows that properties owned since 1978 remain taxed at the same value they held in 1978 until 50 percent or more of their ownership changes hands, with a yearly two percent increase to account for inflation, was passed and further lowered taxes for golf courses across California.
California isn’t the only state with such tax saving measures for golf courses, especially under the guise of preserving green open spaces. Virginia, for example, provides tax relief to landowners to “preserve agricultural, horticulture, forestry and open space lands” as part of a use value assessment program. The irony, of course, is that not many can enjoy access to these exclusive and expensive “green spaces.”
Apparently, such favorable tax treatment isn’t enough for these wealthy establishments. In May, a bipartisan bill was filed in the U.S. House of Representatives calling for “the removal of golf from section 144(c)(6)(B) of the U.S. tax code, which disqualifies golf facilities from disaster relief and economic stimulus programs that are available to other businesses such as restaurants, hotels and other leisure activities.” The future of the legislature remains to be seen.