Daily Tax Report: State provides authoritative coverage of state and local tax developments across the 50 U.S. states and the District of Columbia, tracking legislative and regulatory updates,...
By Ryan Prete
It’s almost time for the “Big Dance"—college basketball’s March Madness is just days away.
And with Selection Sunday set for March 11, Bloomberg Tax analyzed the salaries and tax burdens of the five highest paid NCAA men’s basketball coaches.
Like any profession, college basketball coaches are subject to federal and state income taxes. Each of the five highest paid basketball coaches fall into the top federal tax bracket of 37 percent. State income tax rates vary, ranging from 4.997 percent in Ohio to 6.5 percent in West Virginia.
Coaches also are subject to nonresidential taxes when playing away games in foreign states, according to Sean K. Packard, tax director at Octagon Financial Services.
States’ thresholds vary when it comes to nonresidential taxes. According to the Mobile Workforce Coalition, 24 states subject nonresidential employees to withholding income taxes on the first day of travel within the state. Seventeen states have longer, varying thresholds for nonresidential taxes.
Nonresidential taxes are different than “jock taxes,” a significant tax burden faced by professional coaches and athletes. Jock taxes are calculated by each state through a “duty day” count—the time a player contributes to “income-related work” in any state that administers an income tax.
High-income individuals making over $200,000 are also subject to a .09 percent Medicare surplus tax.
Despite the tax burdens, the coaches each walk away netting millions of dollars annually. In 2016, men’s college coaches were the highest paid state employee in 39 states.
In 2016, Bill Self—the fourth highest paid men’s basketball coach in 2018—made headlines when news broke that he had used a loophole in the 2012 Kansas tax cuts to avoid paying state taxes on 80 percent of his salary.
The 2012 cuts, which Gov. Sam Brownback (R) billed as a pro-business conservative experiment for the nation, reduced the state tax on pass-through businesses to zero. Pass-through profits are “passed through” to the owners, who then pay income taxes on them. By lowering the tax on pass-through income, the state opened the door for people to set up an LLC or S corporation, have their employer pay that business, and then collect the money tax-free.
Self appeared to do exactly that. In July 2012, Self’s attorney, Stuart Campbell, filed articles of incorporation for a limited liability company called BCLT II. In August 2012, Self signed a contract extension with Kansas that paid him $230,000 per year—and his LLC $2.75 million.
Without accounting for any possible deductions or credits, the coach behind Kansas’ 2008 NCAA championship and the state’s highest paid employee likely paid around $10,985 in state taxes in 2013, $10,725 in 2014, and $10,295 in 2015 and 2016.
The Kansas Legislature ended the cuts in 2017. With a state income tax rate of 5.7 percent, Self is set to pay over $270,000 in 2018.
Under NCAA regulations, student athletes are currently barred from earning a salary. However, if they received a yearly income, they would be subject to all of the same taxes as their coaches.
One sports-focused CPA has argued that Congress could move to tax scholarships, which are currently tax-exempt, should student athletes get paid.
“When students get scholarships, it’s an agreement for free tuition in exchange for services,” Ryan Losi, financial adviser and executive vice president at PIASCIK, an accounting firm that works with athletes, previously told Bloomberg Tax. “But if students receive additional income, Congress could look at the entire sum as income and propose that taxes be paid on the scholarships.”
Under Losi’s theory, a student athlete receiving an annual scholarship valued at $30,000 plus a yearly salary of $30,000 would pay the taxes on $60,000.
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