Tax law squeezes corporate courting
WASHINGTON — Could the crackdown on tax loopholes clamp down on corporate schmoozing?
The new tax law ends a benefit prized by business for impressing customers or courting new ones. And the impact could be felt in the pricey boxes at sports stadiums, or even at Double-A baseball games in small towns with loyal company backers. In Washington, lobbyists who helped craft the Republican tax legislation could now be pinched by it.
U.S. companies spend hundreds of millions annually on entertaining customers and clients at sporting events, tournaments and arts venues, an expense that until this year they could partially deduct from their tax bill. But a provision in the new law eliminates the longstanding 50 percent deduction in an effort to curb the overall price tag of the legislation and streamline the tax code. “Congress didn’t feel the government should subsidize it anymore. Firms are going to take a hard look at their entertainment budgets,” said Ryan Losi, a certified public accountant in Virginia.
The provision is one of the many under-the-radar consequences slowly emerging from the new tax legislation, the most sweeping rewrite of the tax code in three decades. Also embedded in the law are little-noticed provisions with the potential to bring major changes to mundane parts of American life — including home-buying, saving for school and divorce.
Ending the deduction will save the government about $2 billion a year and $23 billion through 2027 in formerly lost revenue, Congress’ bipartisan Joint Committee on Taxation estimates.
Of course many companies will conwtinue to spend without the tax incentive, for the benefits they get from entertaining such as the payoff in future revenue. But the tax change still could have a financial impact on sports teams and cultural institutions.
The industries that spend the most on this type of entertaining are banks and financial services, airlines, automakers, telecoms and media. This kind of organized socializing also is a staple of lobbying firms, of course. The K Street lobbyists often party with clients at Washington Nationals ball games or Capitals hockey games. The firms may have tough decisions to make regarding spending on future outings.
“There’s also the psychological impact,” said Marc Ganis, a cofounder of Sportscorp Ltd., a consulting firm. “When something is deductible, people think it’s less expensive; effectively the government is paying for part of it.”