Our best buddy Duane took a shot at California's infamous 'jock tax' in his post the other day, in relation to the current Super Bowl champ, Seattle Seahawks quarterback Sam Darnold.
Let me do a quick recap. For appearing in the game and winning, Darnold's share of the bonus awarded to Seahawks players was $178,000 on top of his regular salary, etc. Thanks to the state of California's rapacious tax system, the applicable 'jock tax,'and the manner in which they calculate what visiting athletes owe them for games based on their seasonal salary, Mr. Darnold wound up owing Newsom and Co his entire bonus and then some.
...According to multiple reports, Mr. Darnold, and the rest of the Seahawks earned a $178,000 bonus for defeating the New England Patriots in the Super Bowl. But Mr. Darnold ended up with a California tax bill of approximately $249,000, leaving him $71,000 in the red.
Mr. Darnold’s tax bill is based not just on the game itself, but “duty days,” the number of days spent practicing, training, meeting with the media and playing games in the state. Those days are then used along with an athlete’s entire season salary to come up with a final bill.
What a load of hooey, to put it politely, right?
Indeed.
But it is kind of a fascinating story, how it all came about to begin with, and where it's going from here.
This money grab began in California - naturally - during an NBA championship playoff series in 1991, when Michael Jordan's Chicago Bulls played Magic Johnson's Los Angeles Lakers.
Chicago won.
Out of the blue, Jordan's accountant got a tax bill from California for the days he'd spent in the state playing against the Lakers.
Apparently, this rule had been on the books for quite a while, but never enforced.
Was it a fit of pique over the loss?
Who's to say, but what it did was start a retaliatory, very lucrative, 'jock tax' war that, over the years, has now sucked some forty states and big league cities (like Cleveland, Kansas City, Philadelphia, and Detroit) in.
MICHAEL JORDAN'S REVENGE
Pro athletes pay taxes in every state because of Michael Jordan 🤯 pic.twitter.com/QaxHmlIoK2
— Joe Pompliano (@JoePompliano) October 19, 2022
There are now very few holdouts who don't have their tax hands out, and as major sports are traveling enterprises, it's an accounting nightmare not only for the superstars but the little guys who pick up towels who travel with them, too.
...While Florida, Texas and Washington — states without a state income tax — avoid the issue, at least 40 states have a jock tax to amplify non-resident income. California has aggressively enforced its jock tax since the early 1990s, when the Chicago Bulls were taxed on their earnings during the NBA Finals against the Los Angeles Lakers.
Since then, most states with professional teams, and some cities, have followed suit, creating a tax burden that is both punative and time consuming.
“The administrative burden alone is excessive,” Mr. Nairooz says. “Professional athletes can end up filing tax returns in 15 to 20 states in a single season, and the cost and complexity of that eats into their earnings before they ever see the money.”
...The jock tax doesn’t only impact highly-paid star athletes — trainers, scouts, and lower-paid athletes often face the same tax issues despite earning far more modest incomes.
Of course, this holds true for bands who do gigs across the country, nurses and doctors who do temp work, and almost everyone who spends time working in another state that has income tax requirements.
Professional athletes are on the hook for every minute spent somewhere else.
When you make really good money, where you live before you hit the road can save you serious coin, if that's an option.
6) Tyreek Hill said that taxes played a big part in his decision to choose the Miami Dolphins over the New York Jets.
— Joe Pompliano (@JoePompliano) April 17, 2023
The difference in state tax rates (0% vs. 10.75%) saved him $2.7 million last year alone.
And when you add in the next 3 years, he'll save about $10 million. pic.twitter.com/8ha81TzkVw
That's where the 'jock tax' is.
A new wrinkle is going to be introduced this fall when college athletes begin partaking of the revenue sharing that's been recently blessed, which is expected to be treated as 'taxable wages.'
...A ruling by a federal judge last October in House v. NCAA cleared the way for schools to compensate athletes directly through revenue-sharing arrangements. Unlike NIL (Name, Image, and Likeness) deals, which are typically paid by third parties — revenue-sharing arrangements are tied directly to athletic participation. The revenue-sharing payments, introduced for the 2025-2026 school year, are widely expected to be treated as taxable wages, making them subject to state income tax and jock-tax laws.
Those college road trips could now cost unaware and completely non-financially savvy college athletes money they have no idea how to manage, to begin with.
...In California, the after-tax consequences could be significant. And unlike professional athletes, who are surrounded by agents, accountants and financial advisors, college athletes may not have the resources to anticipate the tax implications they could be facing.
“Revenue sharing and NIL deals turned them into income earners almost overnight,” Mr. Nairooz says. “But most of them have little to no financial infrastructure around them. A 19-year-old playing an away game in California may not even realize he owes taxes there. Unfortunately, teenagers and young adults aren’t taught about taxes in ordinary curricula, and these aren’t average students.”
The universities and colleges that have these young people, often from truly disadvantaged circumstances in the first place, in their programs - especially football - have never done a stellar job of preparing them for the sudden fame and fortune a professional career afforded them, and it's been tragic watching the crashes and burns.
They're financial illiterates for sure, and easy marks for their friends.
We had our own sad story here in town, and Trent Richardson is only one of so many in the same boat.
This is some of what he experienced from an interview he did with ESPN back in 2016.
- Richardson on finding out his family and friends spent $1.6 million of his money in 10 months: "I finally just looked at my bank statement, and I was just like, 'Where did this come from? Where did that come from?' And my guy was sitting there telling me, 'Man, we was telling you.' I know he was telling me, but that's just like telling a kid to stop running in the hall. They're going to still do it when you turn your back or you leave. It's just one of them moments to where I was just blinded by my heart, by loving everybody and thinking that everyone was for me. I know they love me. I know they do care. But at the time, they took advantage of me."
- Richardson on finding out he had 11 Netflix accounts and eight Hulu accounts under his name, as well as multiple charges on Amazon.com and for bottle service at clubs: "I don't even get on the Internet like that, and I don't even drink."
...According to Richardson's brother Terrell, the following people were living with Richardson: "Me, my brother, my older brother visited frequently, Trent's kids, Trent's girlfriend, my uncle, my Aunt Vera, my cousin Julius, my cousin Devin, a friend of our family's Marlon."
After washing out of Oakland last offseason and reviewing his finances, Richardson got rid of everybody, including his brother, who he was paying roughly $100,000 to be a personal assistant. He plans to live with his grandmother in Pensacola and continue his rehab, and now has enough money left to support himself and his immediately family.
And now they're going to have money and complicated tax obligations before leaving school, which they'll have to account for as if they were grown-ups?
It's going to be quite the learning curve, and they could well start out in a hole they weren't aware they were digging.
...“They’re earning real money for the first time without CPA’s, financial advisors or any real education around taxes, investing or long-term planning,” he says. “Without proper guidance they’re vulnerable to bad decisions or being taken advantage of before their careers even get started.”
Nothing's quite as scary as the tax man coming for you when you didn't know you owed him to begin with.
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