Final answer:
A pro sports team may owe no income tax in a year with operating profit because it reinvests its profits back into the franchise, which can be deducted from taxable income. This is in line with typical business tax laws, not because there is a specific exemption for sports teams.
Step-by-step explanation:
If a pro sports team has an operating profit in one year, it may owe no income tax not because sports teams are exempt from income taxes or because tax laws don't apply to them, but because the team reinvests the profit into the franchise. This mechanism is consistent with tax laws that allow businesses to deduct certain expenses related to the operation and improvement of their business before calculating taxable income. Profits reinvested into the franchise can often be counted as such expenses, which may reduce the taxable income to the point where the team owes no income tax. In the context of taxes, professional athletes, who are typically high earners, may save a significant portion of their after-tax income due to their potentially short career spans. This means that they might save, for example, one-third of their after-tax income. In comparison, owners of local entertainment venues likely pay a lower tax rate, such as 35% of their marginal income, and they tend to spend a higher proportion of their income on local goods due to lower saving capacities and local living circumstances.