NFL Draft Picks’ Pay Hinges on Wildly Different State Tax Rates

A few days ago, all the NFL teams met in Kansas City, Mo., to select newly eligible players for the upcoming season. The first draft pick’s pay is roughly $41 million for a four-year commitment, a salary that gradually decreases by draft pick number and subsequent draft rounds.

While rookies in all seven draft rounds undisputedly make a substantial amount of money, where they get drafted makes all the difference in their total take-home earnings as a result of income taxes.

Only eight NFL teams are based in states that don’t assess an income tax on its residents: the Tennessee Titans, Dallas Cowboys, Houston Texans, Las Vegas Raiders, Tampa Bay Buccaneers, Jacksonville Jaguars, Miami Dolphins, and the Seattle Seahawks. Seven of these teams drafted nine rookies in the first round who will enjoy the benefits of their new non-income tax home state.

The remaining 24 NFL teams are in states that assess an income tax against its residents, as well as nonresident professional athletes that earn income there. This is known as the jock tax, which allows income taxing states and cities to levy the income of nonresident professional athletes whenever they engage in athletic contests when visiting that state.

For away games, all professional athletes are subject to the jock tax, which income-taxing states assess on all income earned by a professional athlete for pre-season, regular season, playoff, championship, and even Pro Bowl games. This means if a rookie is drafted to the Dallas Cowboys, he’ll be subject to an income tax on the salary he earns any time he faces off against the Cowboys’ longtime rivals—the Philadelphia Eagles. Like many other states and cities, both Pennsylvania and Philadelphia assess a jock tax on nonresident athletes.

The 32 NFL teams play 17 regular-season games with one bye week. While a rookie can’t change tax laws, his agent and tax adviser may be able to craft creative payment arrangements to minimize complications associated with the taxation of his new salary. For example, most NFL players are paid by their respective NFL franchise during the 18-week season rather than the 52-week calendar year.

Because most states calculate a nonresident athlete’s tax liability by dividing the number of days an athlete is in a state, divided by the total number of “duty days” an athlete works for a team—including meetings, games, practices, and other obligations—payment over a 52-week duration could increase the number of duty days, which may decrease a nonresident athlete’s tax liability.

All NFL teams alternate seasons where they host either nine regular season games and one preseason game, or eight regular-season games and two preseason games. Accordingly, an athlete on a team hailing from a non-income tax state is guaranteed at least eight games on which the athlete will earn a salary and avoid tax consequences.

For games where teams play on their non-income taxing home turf, no income tax is assessed against their players or their opponents. As such, playing for or against a team from a non-income tax state is more advantageous for all professional athletes, especially the 2023 draft picks—some of which received some of the highest signing deals since the NFL collective bargaining agreement introduced a revised rookie wage scale in 2011.

The Buffalo Bills, Tennessee Titans, Jacksonville Jaguars, Kansas City Chiefs, and New England Patriots will play international games during the 2023 season in the UK and Germany—two of several countries that have tax treaties with the US to minimize tax consequences for nonresidents. Yet, NFL players that play games in London are taxed by the UK at a gradual rate up to 45%. To assist with this disparity, US tax law provides athletes with a foreign tax credit at the US tax rate, which likely is lower than the international rates and the additional state taxation rates.

Which division a rookie is drafted to also plays a role in his tax liability. For example, the AFC South is home to the Tennessee Titans, the Jacksonville Jaguars, the Houston Texans, and the Indianapolis Colts. Three out of the four teams are located in non-taxable states.

Because each team plays six games against divisional opponents (two games per team—one at home and one on the road), athletes within the AFC South have minimal tax consequences compared to others in the league, such as the AFC North and AFC West. The AFC North and West divisions respectively are home to the Baltimore Ravens, Cincinnati Bengals, Cleveland Browns, and Pittsburgh Steelers, as well as the Kansas City Chiefs, Denver Broncos, Las Vegas Raiders, and Los Angeles Chargers.

With the exception of the Las Vegas Raiders, each of these teams are based in a state that charges both an income tax on its residents and a jock tax on non-resident professional athletes (Maryland, Ohio, Pennsylvania, Colorado, California, and Missouri). Footballers that play for these teams and divisions face much higher tax liabilities than others. This type of disparity between tax consequences across the NFL clearly presents fairness concerns.

The recruits of the 2023 draft secured impressive contracts, and that will benefit the National Football League and state taxation authorities alike.

This article does not necessarily reflect the opinion of Bloomberg Industry Group, Inc., the publisher of Bloomberg Law and Bloomberg Tax, or its owners.

Author Information

Addison Fontein is an associate at McGuireWoods LLP in Dallas. She focuses on the business side of sports, especially the jock tax, in addition to name, image, and likeness compensation of NCAA collegiate athletes.

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