Many UW-Madison football fans are celebrating the team’s undefeated regular season by stocking up on new Badger hats, jerseys and shirts. But if a Congressional GOP tax reform proposal is successful, the federal government might soon be taking a cut of that revenue — which would mean less money available for scholarships for low-income students and the athletic department.
Under the Senate’s tax bill, UW-Madison and other schools throughout the country would face new taxes on funds they generate by using their names and logos on merchandise. The provision would categorize these sales as unrelated to the university’s charitable mission.
In a Nov. 27 letter to U.S. Sen. Tammy Baldwin (D-Wisconsin), UW-Madison Chancellor Rebecca Blank expressed concern with several provisions included in the Senate tax bill, writing that it would “increase costs and regulatory burdens on UW-Madison.”
“The bill contains several proposals that would increase taxes owed by many colleges and universities including treating name and logo royalties as unrelated business taxable income,” Blank wrote. “For UW-Madison, this provision alone means $1-2 million annually that currently support students would become taxable income and therefore reduce the amount available for scholarships.”
Revenue generated from licensing has been a cash cow for UW-Madison, which recently ranked 12th among the nearly 200 universities and colleges licensed through the Collegiate Licensing Company.
UW-Madison’s net revenue from licensed merchandise fluctuates from year to year and it tends to see a bump if a Badger sports team has a particularly good year — like when the men’s basketball team played in the 2015 national championship game. The university creates special merchandise for Final Four trips and Rose Bowl appearances, among other achievements.
Between July 1, 2015, and June 30, 2016 (the most recent figures available), UW-Madison made roughly $4.4 million from royalties — a record that beat the university’s previous best by more than half a million dollars. It trailed only Michigan State University and the University of Michigan in the Big Ten.
If the proposed corporate tax rate of 20 percent were in effect, UW-Madison would have had to pay about $880,000 in taxes on the net revenue. The provision would have the biggest impact on universities with large athletic programs, though it would affect any UW System school that sells licensed merchandise. Estimates show the government could collect $2 billion throughout the next decade from the licensing provision, according to Inside Higher Education.
UW-Madison spokesperson Meredith McGlone said the provision “would hurt students by reducing the amount of money available for scholarships.”
Last year, nearly $2 million of the revenue from licensed merchandise went to the Student Financial Aid Office, funding need-based scholarships and grants for low-income students. Since 2001, licensing revenue has contributed $16.4 million to the Bucky Grants, a program funded exclusively through this revenue. About another $2 million went to the UW-Madison Athletic Department last year.
Ahead of the Senate vote, McGlone said the university is making members of Congress aware of the bill’s possible effects on higher education.
Blank was also concerned with other elements of the Senate bill, though she noted it “does not include some of the more harmful provisions to students and families in the House version.” She wrote that the bill would reduce charitable giving to the university, and it would eliminate an important refinancing tool the university uses, which could raise the price of building projects by millions.
The House bill, which does not contain the provision to tax revenue from licensed merchandise, recently passed with no Democrats voting for it. The Senate bill, which contains the provision, just passed out of committee and could be voted on this week. If the Senate bill passes, both chambers of Congress would have to reconcile the bills.
