Newton to feel effects of California's taxes
As soon as Cam Newton stepped off the plane last Sunday, the state of California began taxing him for every day spent prepping for and playing in the big game. This taxation arises due to what’s colloquially referred to as the “Jock Tax” but athletes are not the only ones impacted by it. Without getting into the nitty gritty of the tax code, think of the Jock Tax as a state income tax levied on anyone from outside the state who conducts business in the state.
Visiting athletes make for easy tax targets because of their relatively high and publicly available salaries, and often playing for rival teams doesn’t exactly endear them to state lawmakers and state tax collectors. Plus, visiting athletes’ well-known game schedules make their whereabouts easy to track. There’s no way around the Jock Tax for Newton and other professional athletes. The same is true for other employees on their teams: The Jock Tax affects anyone traveling with the team—coaches, trainers, broadcasters, even the refs.
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Of the 25 states with professional sports teams, 21 impose a Jock Tax. But this year, the stage for the Super Bowl happens to be in the state with the highest income tax rate in the country at 13.3%—nearly three times the rate of Arizona, home to last year’s Super Bowl. Super Bowl 50 is ranked first among Super Bowls when it comes to taxes. This is not new news for athletes who play in California. In 2013, for example, California collected more than $229 million in income tax from athletes. Hosting Super Bowl 50 will only be an extra boost for state coffers.
Let’s get back to Newton’s tax situation. When you add up his salary, signing bonus and postseason bonuses, the 26-year-old star quarterback will earn more than $20 million in 2016. And that’s just on the field, so it’s not even counting his lucrative endorsement deals. For the days Newton spends in Santa Clara for his employment as a Carolina Panther—this includes time spent practicing and participating in media days, plus the two times he’ll travel back to California in 2016 to take on the Oakland Raiders and the Los Angeles Rams—Newton will owe the state approximately $137,000 in taxes. Remember, Newton isn’t a resident of California and he isn’t employed in California. Yet the amount of money Newton will owe California in taxes more than doubles the median income in the U.S. (approximately $54,000).
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Is this a fair system of taxation? Depends on whose side you’re on. On one hand, Newton’s time in California as a member of the Panthers is clearly for work and his generous tax contributions can be used to improve Californian schools, among other good purposes. On the other hand, Newton and the Panthers seem to be treated differently from other “out-of-town” professionals, such as businesspersons who attend conferences in California. because NFL players happen to earn a lot of money and their whereabouts are easy to monitor.
Regardless of whether the Jock Tax is fair, more and more states and cities are turning to it. It means that NFL players could end up filing in 10 or more states and municipalities every year. They will get a tax credit in the state where they reside to relieve some of the burden, but far from all of it. Paying the Jock Tax is just part of the game for these players. To be sure, it’s a drop in the bucket for most. On the other hand, now that California has four NFL teams, players will be traveling to the highest-tax state more often and may see more Super Bowls on its soil.
Whoever is lucky enough to hoist the Lombardi Trophy on Feb. 7 certainly won’t be thinking about taxes owed for playing in the biggest game of their lives. But those taxes might cross their mind months from now when their accountants let them know of their tax burdens. All of this is on top of any income tax in states where players reside.
As for next year’s Super Bowl, slated to take place at NRG Stadium in Houston, players on both teams will win big. The income tax rate in Texas? $0.
Robert Raiolais the senior manager of the Sports & Entertainment Group of the CPA and Advisory Firm PKF O'Connor Davies.
