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
What could college athletes owe in taxes if they were paid?
With the National Collegiate Athletic Association’s Division I men’s basketball tournament around the corner—also known as “March Madness"—Bloomberg Tax analyzed the theoretical tax burdens of student athlete pay.
Student athletes’ compensation would be subject to the same taxes imposed on regular income. Sean K. Packard, tax director at Octagon Financial Services, told Bloomberg Tax that regardless of what a player could receive as annual pay, federal and state income taxes would be collected.
However, college athletes wouldn’t be subject to jock taxes, a significant burden faced by professional 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.
Instead, college athletes would face nonresidential taxes when entering foreign states, according to Packard. NCAA coaches are also subject to nonresidential taxes.
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.
However, would athletic salaries be worth the risk of taxes on scholarships?
This is the question posed by Ryan Losi, financial adviser and executive vice president at PIASCIK, an accounting firm that works with athletes.
Losi told Bloomberg Tax if colleges started paying student athletes, Congress could move to tax scholarships, which are currently tax-exempt.
“When students get scholarships, it’s an agreement for free tuition in exchange for services,” Losi said. “But if students receive additional income, Congress could look at the entire sum as income and propose that taxes be paid on the scholarships.”
According to the College Board, the average cost of tuition and fees during the 2017-2018 school year was $34,740 at private colleges, $9,970 for state residents at public colleges, and $25,620 for out-of-state residents attending public universities. Taxes on full or partial scholarships could amount to thousands of dollars, Losi said.
“Paying athletes could potentially lead to blurred lines,” he said. “Congress could view compensation and taxes as an all or nothing endeavor.”
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.
Dr. John Karaffa, president of ProSport CPA, told Bloomberg Tax that scholarships are likely to be taxed if student athletes are paid, but that students should receive an income that provides a cushion between themselves and the tax burden.
“Compensation should be made,” Karaffa said.
What about if a company or organization profits off a student athlete’s image? Should the athlete see a piece of the proceeds?
Packard, Losi, and Karaffa say “yes.”
“I’m all for royalties and players profiting off their likeness,” Losi said. “I think these funds would best be suited in a trust student athletes would have access to after college.”
“Likeness” refers to an individual’s image or depiction. Currently, a student athlete can’t profit off his or her own likeness. If that were to happen, the funds would be subject to federal and state income taxes, but unlike normal income, it would be exempt from FICA and Medicaid taxes, according to Losi.
The fight for amateur likeness profits isn’t a new battle.
In 2009, Ed O’Bannon, former NBA player and member of the 1995 NCAA Champion UCLA Bruins, led an antitrust lawsuit against the NCAA after seeing his likeness used in a video game without his permission.
In 2014, Senior District Judge Claudia Wilken of the U.S. District Court for the Northern District of California sided with O’Bannon and other athletes, but stopped short of permitting a fully open market on athlete licensing. The U.S. Supreme Court declined to consider the case after a 2015 ruling from the U.S. Court of Appeals for the Ninth Circuit pared back Wilken’s O’Bannon decision.
On Jan. 16, 2018, Wilken heard arguments in Jenkins v. NCAA—a new case that seeks to lift all NCAA limits on compensation for Division I athletes.
During arguments, Beth Wilkinson, a lawyer for the NCAA, argued that the Ninth Circuit’s 2015 ruling precludes the athletes from pursuing further compensation.
Labor lawyer Jeff Kessler argued that after the NCAA decided to allow athletes to receive gifts that aren’t tethered to their education costs, it must justify why additional compensation shouldn’t be allowed.
The judge didn’t indicate when she will rule.Martin Jenkins is a Clemson University football player who contends the scholarship process itself is an unfair cap on wages. Colleges are depicted in the suit as conspirators—not competitors— during the recruiting process. If a player is worth more to a school than the value of his full cost-of-attendance scholarship, he should be compensated as such, according to the complaint.
With assistance from Pamela MacLean and Eben Novy-Williams (Bloomberg)
To contact the reporter on this story: Ryan Prete in Washington at firstname.lastname@example.org
To contact the editor responsible for this story: Ryan C. Tuck at email@example.com
Copyright © 2018 Tax Management Inc. All Rights Reserved.
All Bloomberg BNA treatises are available on standing order, which ensures you will always receive the most current edition of the book or supplement of the title you have ordered from Bloomberg BNA’s book division. As soon as a new supplement or edition is published (usually annually) for a title you’ve previously purchased and requested to be placed on standing order, we’ll ship it to you to review for 30 days without any obligation. During this period, you can either (a) honor the invoice and receive a 5% discount (in addition to any other discounts you may qualify for) off the then-current price of the update, plus shipping and handling or (b) return the book(s), in which case, your invoice will be cancelled upon receipt of the book(s). Call us for a prepaid UPS label for your return. It’s as simple and easy as that. Most importantly, standing orders mean you will never have to worry about the timeliness of the information you’re relying on. And, you may discontinue standing orders at any time by contacting us at 1.800.960.1220 or by sending an email to firstname.lastname@example.org.
Put me on standing order at a 5% discount off list price of all future updates, in addition to any other discounts I may quality for. (Returnable within 30 days.)
Notify me when updates are available (No standing order will be created).
This Bloomberg BNA report is available on standing order, which ensures you will all receive the latest edition. This report is updated annually and we will send you the latest edition once it has been published. By signing up for standing order you will never have to worry about the timeliness of the information you need. And, you may discontinue standing orders at any time by contacting us at 1.800.372.1033, option 5, or by sending us an email to email@example.com.
Put me on standing order
Notify me when new releases are available (no standing order will be created)