On July 14th, the IRS held a public hearing for the debt-equity rule (section 385 of the IRS code) that the Treasury Department proposed last April. The hearing, which had as many as 16 speakers from various industries,...
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- Both Teams Lose at Super Bowl because of Jock Taxes
Both Teams Lose at Super Bowl because of Jock Taxes
When the Seattle Seahawks play the Denver Broncos in the Super Bowl on Sunday, New Jersey will gain more than just media attention from the game. The state will also take in a substantial amount of tax revenue from the players, coaches, and other team personnel that travel to the state for the game. New Jersey will levy a so-called "jock tax" on every employee of the team that travels to the state. Since the teams have been in New Jersey all week participating in National Football League events leading up to the Super Bowl, the state will tax all team members for the entire time they are in the state, not just for the game on Sunday.
To calculate a jock tax, the state will divide the number of days spent in the state (7 days, assuming the teams leave right after the game) into the total number of days the player was available to work in any state during the season (varies by player, but usually around 170). The state will then multiply that amount by the player's income to arrive at the portion of income attributable to the state. The state will then multiply this amount by the state's income tax (in New Jersey, the top rate is 8.97 percent) to arrive at the jock tax bill. So a player making $1 million would owe roughly $727 for the game. For the Super Bowl, this is made far more difficult because there is a bonus paid to the participating teams. This recent article on Forbes walks through the complexity of calculating this tax burden, finding that Peyton Manning might be subject to a 101.83 percent tax on his Super Bowl earnings because of how jock taxes are levied.
Almost every state that has both an income tax and a professional sports team levies a jock tax on visiting professional athletes. The jock tax is a colloquial expression used to describe the income tax that is assessed on professional athletes when they visit a state to play a game. The athletes are taxed on all time spent in the state performing official activities for their team, such as practices and team meetings, in addition to the game. States also tax every member of the team that travels to the state, including trainers, scouts, and coaches. Highly paid sports stars may be able to afford the tax, but it can be more problematic for lower paid members of the teams.
Many trainers and scouts do not earn much more than the national median income, and players earning the league minimum in some leagues, such as Major League Soccer, earn only around $35,000 per year. This can lead to a substantial tax complexity burden because many team members have to file income taxes in around 15-20 states each year. In addition, most players do not earn as much over their lifetime as some people think. Their earnings are highly concentrated in a few brief years and then level off. For example, the average career of an NFL player lasts somewhere between 3.5 to 6 years. In addition, Sports Illustrated reported in 2009 that 78% of NFL players are bankrupt or in financial stress within 2 years of retiring.
States like to tax visiting professional athletes because they are perceived to be easy targets for taxation. Their schedules are published in advance, some have very high incomes, and as non-residents, they cannot vote to voice their displeasure with the tax. In addition, some people do not see the problems with the tax because many view it as a small tax on multi-millionaire athletes. However, some of the statistics on player earnings illustrate that the tax hits many people who may not be able to easily absorb the substantial compliance costs associated with the tax.
See more of our work on jock taxes here.
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The Tax Policy Blog is the official blog of the Tax Foundation, a non-partisan, non-profit research organization that has monitored tax policy at the federal, state and local levels since 1937. Our economists welcome your feedback. If you would like to send an e-mail to the author of a blog post, please click on that person's name to locate his or her e-mail address or visit our staff page here.
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