I was poking around the Interwebz this week, and I came across an interesting little tidbit related to the San Francisco 49ers first round pick, Arik Armstead. We have a general idea of how rookie contracts will shake out in annual earnings, and that allows us to take a look at what taxes can mean for a given player. Taxes are not the sexiest topic, but in the big money world of professional sports, they can have a significant impact.
Arik Armstead's four year contract will be worth a little over $9.8 million. It will result in taxes of approximately $4.77 million, leaving him with just over $5 million. Corry estimates it at $5,068,000. On the other hand, Dallas Cowboys first round pick Byron Jones is due a total of just over $8.6 million. It will result in taxes over just over $3.6 million, leaving him with an estimated $5,010,000.
Armstead can earn more with his fifth year option, but it is kind of fascinating to see how taxes can cut into it. Well, as a lawyer and former accountant (for the Oakland A's), I might be in the minority in finding this fascinating. Both Armstead and Jones will be in the same tax bracket on the federal level. However, Jones will pay no state income tax in Texas, while Armstead will pay 13.3 percent. The joy of living in California.
I have always wondered how state income tax factors into athletes decisions in free agency. Even if a player sets up official residence in a state with no income tax, he will be paying state income tax for the time he is in the state of his team. It is also worth noting athletes don't pay taxes for just the state of their team. They also pay taxes in the states and localities where they play games. That has actually been in the news lately. The city of Cleveland lost a lawsuit in which former Chicago Bears punter Hunter Hillenmeyer and former Indianapolis Colts center Jeff Saturday argued the tax rules were unfair.
The city of Cleveland has what is called a "jock tax", in which they tax athletes based on time spent in the locality. Cleveland uses a "games played" method for allocating income. Until this ruling, Cleveland essentially based income strictly on games played, dividing 1 game out of 16 for tax purposes. Hillenmeyer argued that it should be "duty days", in which they take the number of days spent in the city, and divide it by total number of days in the season. The idea being that while a football player gets a "game check", they are being paid for more than just showing up and playing on Sunday. The Ohio Supreme Court came down in Hillenmeyer's favor, ruling the "games played" method violated the Due Process Clause of the Constitution.
Jeff Saturday sued on those grounds, but also because Cleveland taxed him for a game in which he was not even in the state. Saturday was injured for a game, but Cleveland still assessed him the taxes for that game. The Ohio Supreme Court ruled the city had no statutory basis for taxing Saturday since he never stepped foot in Cleveland.
The NFLPA issued a memo on the matter for agents to get a better handle on it. Again, I realize this is not the most exciting subject matter for some people, but I find it intriguing given the kind of money in play in professional sports.