California’s long term debt is about $500 billion, but you wouldn’t know it from the taxes it collects from professional athletes. According to data obtained by SI.com from the California Franchise Tax Board, California collected a staggering $216.8 million in income taxes from professional athletes in 2012, the most recent year available. This included state income taxes paid by athletes who work, and in some cases reside, in California. They also included so-called “jock taxes” imposed on out-of-state professional athletes whose teams visit to play games in California.
Here is the breakdown by sport:
The $216.8 million collected by California from athletes in 2012 was up from the $171.4 million in 2011. The increase was mainly attributable to a rise in California’s highest marginal rate from 10.3 percent in 2011 to 13.3 percent in 2012, a change which gave California the highest income tax rate in the United States. It also reflected sustained efforts by California officials to track athletes who generate income in the state and make sure they pay their taxes.
Keep in mind, many professionals engage in temporary work in other states but do not pay taxes in those states. Imagine a physician from Massachusetts who travels to California for a three-day professional conference. During this conference, the physician makes professional contacts and learns new techniques relevant to his or her specialty. California would normally not try to collect taxes from this physician, even though the physician was engaged in professional services in California for a longer period of time than an out-of-state NFL player or NBA player spends playing games in the Golden State.
Why are out-of-state professional athletes treated more onerously by California than out-of-state physicians -- or, for that matter, out-of-state lawyers, accountants, engineers, businesspeople, journalists and other professionals? In part it's because professional athletes’ high profiles make them easy targets for tax collectors. Another reason is their high salaries make them attractive targets, especially in states that are desperately in need of revenue. There is no state in greater need of revenue than California.
Athlete income taxes collected by California also highlights the importance of professional sports teams to states’ economies. To be sure, there are legitimate public policy arguments against communities providing public assistance to professional teams that seek to build new stadiums, arenas and ballparks. We are all familiar with the refrain, “Why should taxpayers help out billionaire owners?” These arguments have always resonated, and especially now-a-days with many states struggling to pay teachers, police officers and other vital public employees. Nevertheless, taxes collected from millionaire athletes add up. Consider DeMarcus Cousins, Rudy Gay and other highly-paid players on the Sacramento Kings. The Kings were nearly purchased by Steve Ballmer and Chris Hansen last year and relocated to Seattle. Instead, the Kings have received assistance from the City of Sacramento to obtain land for a new arena. The assistance has attracted criticism and even a citizens’ lawsuit, but the Kings currently project to pay about $76 million in players’ salaries in 2014-15 (not to mention salaries to team officials). All of this income will be taxed by California and generate revenue for the state.
California is able to raise substantial taxes from athletes who play and live in the state despite the fact that some could choose to play and live elsewhere. The decision of which team to play for obviously involves numerous factors, including salary, projected playing time and proximity to family, but state income taxes are normally viewed as a key factor. Much to the relief of California’s tax collectors, the state’s heavy income tax burden hasn’t stopped teams from signing stars.
Michael McCann, a Massachusetts attorney and the founding director of the Sports and Entertainment Law Institute at the University of New Hampshire School of Law. He is also the distinguished visiting Hall of Fame Professor of Law at Mississippi College School of Law.
Robert Raiola, a senior manager in the Sports & Entertainment Group of the accounting firm O'Connor Davies, LLP.