The Maryland Court of Special Appeals has effectively put to rest the state comptroller’s bid to effectively tax gross receipts from ticket sales to intercollegiate men’s lacrosse games at Johns Hopkins University, by affirming the ruling of the state’s tax court.
In so ruling, the appeals court noted that “the Tax Court was the agency charged with interpreting and applying the tax code; and (3) substantial evidence supported the Tax Court’s conclusion that the gross receipts (from the ticket sales) were used exclusively for an educational purpose.”
The impetus for the case was the university’s challenge of the comptroller’s decision not to refund the taxes it paid on ticket sales. The Tax Court granted the refund. But the comptroller filed action for judicial review. The Circuit Court, Baltimore City, reversed and remanded. On remand, the Tax Court again granted the refund. The comptroller filed a second action for judicial review. The Circuit Court affirmed, spawning the instant appeal.
The comptroller noted the following question for review:
“Did the Maryland Tax Court commit legal error when it decided that the gross receipts from intercollegiate athletic events were used exclusively for an educational purpose?”
“Exclusivity” seemed to be the operative phrase as well as the determination that athletics “are an important part of the educational function of the University.”
The Tax Court judge found that it was not necessary to decide whether the gross receipts from the men’s intercollegiate lacrosse games “were used exclusively for educational purposes,” finding instead that “it was sufficient that the gross receipts at issue were used primarily for educational purposes.”
Relying on Naval Academy Athletic Association v. Comptroller of the Treasury, 1977 WL 1568 (Md.Tax 1977) for support, the Court of Special Appeals wrote:
“There is substantial evidence in the record before the Tax Court in this case to support its conclusion that the gross receipts from the Hopkins men’s intercollegiate lacrosse games were used exclusively for an educational purpose. The evidence showed that the gross receipts were used to benefit the University, the intercollegiate athletes, other non-participating students, and spectators of the sport. All of the net proceeds, that is, about $40,000 per year for the three years in question, were spent directly on the cost of maintaining and repairing Homewood Field. The field is used by all students and their families for commencement exercises, which are plainly educational in nature, and is used by some of the students for ROTC and for intramural games. As noted above, intramural athletic contests always have been treated by the Maryland taxing authorities and the Tax Court as educational in purpose. The jogging track is used by students and faculty nearly 24 hours a day. No profits from the ticket sales were applied to more tangentially educational activities such as the entertainment, travel, and promotional costs the Tax Court considered educational in purpose in the Naval Academy case. Nor were any profits spent to pay for uniforms and equipment for the intercollegiate lacrosse athletes. Indeed, in the case at bar, the Comptroller effectively agreed that, to the extent the net profits from the intercollegiate lacrosse ticket sales were spent to maintain and repair Homewood Field and the jogging track around it, that part of the gross receipts was used for educational purposes.
“The $100,000 remainder of the gross receipts was pre-profit, i .e., it was the money used to pay for the costs of the games themselves. The use of those receipts raises more directly the question whether, on the evidence here, the intercollegiate men’s lacrosse contests further the educational purposes of Hopkins as an institution.
“The evidence before the Tax Court showed that about 50 percent of the students at Hopkins are involved in athletics of some sort; as Tom Calder, Director of Athletics and Recreation for Hopkins, put it, ‘anything from varsity athletics through recreation, club sports, intramurals, using the recreation center and taking … recreational classes there.’ The University has 26 varsity sports teams, all Division III except for the two lacrosse teams, and about 20% of the students participate in these intercollegiate games. There are about 600 total intercollegiate athletes at Hopkins. Mr. Calder testified that athletics in general is an important component of the University’s educational program, commenting that,
“’[p]art of the things that we try to teach our athletes are leadership, thinking under pressure, dealing with all kinds of adversarial things that can happen during games. And I think that’s a major part of what we’re trying to reach and teach our other students also.’
“When asked whether intercollegiate sports, including lacrosse, serve an educational purpose at Hopkins, Mr. Calder replied:
“’Yes, they do. As a matter of fact, I was evaluating my lacrosse coach this morning…. He talked about a big part of his philosophy is leadership, which is a major push by the University’s dealing with leadership too. They [the student athletes] learn all kinds of things during the games, especially being able to compete and handle situations where you have to think very quickly. It’s something, again, that the University really, really wants all of our students, not only the athletes, to be able to do.’
Mr. Calder further testified that it is the stated goal of the President of the University to have athletic programs that are as highly ranked as the school’s academic programs; that intercollegiate home men’s lacrosse games in particular are very well attended by students, faculty, staff, and alumni so as to ‘create a lot of school spirit on campus;’ that the Pep Band, which is part of the University’s Music Department, plays at the games; and that students who participate in athletics, and intercollegiate sports in particular, develop qualities that make them desirable to hire and student athletes draw employers to campus for hiring. Mr. Calder stated that the student athletes have higher graduation rates and grade point averages than the overall student population and that ‘quite a few’ are serving in the military post-graduation. He opined that the character traits the Tax Court had found to be important for the educational mission of the Naval Academy – such as determination, confidence, discipline, and perseverance – are important for success not only in athletics but also after graduation, in the world of competition, military or non-military.
“The Tax Court judge reasonably could conclude from this evidence that all of the profits from the gross receipts in question are spent to support programs and events that even the Comptroller conceded are educational in purpose (in particular, to maintain and repair the field that is used for intramural sports and other educational activities); at Hopkins, the athletes who participate in intercollegiate sports, especially lacrosse, learn skills and behaviors that enable them to achieve academically, while in school, and in the world of competition, after school; the same educational purposes served by intramural sports are served by intercollegiate sports, in particular lacrosse, except that the level of play is higher and more competitive; men’s intercollegiate lacrosse games are integral to Hopkins’s school identity; and the federal government has recognized that intercollegiate athletics at Hopkins serve an educational purpose. The record thus contains substantial evidence to support the Tax Court’s mixed finding of law and fact that the gross receipts generated from ticket sales to Hopkins’s men’s intercollegiate lacrosse games are used exclusively for an educational purpose.”
Comptroller of Treasury v. Johns Hopkins University: Ct. Spec App. Md.; No. 532, Sept. Term, 2008, — A.2d —-, 2009 WL 1617088; 6/9/09
