Last month, prompted by the efforts to build a Los Angeles football stadium and lure an NFL team, I commented on how Proposition 13’s tax vote provisions were influential in the moves and countermoves on the stadium debate over public funding. But, the state’s sky-high income tax also is a factor when individual players consider accepting free agent contracts with California teams.
When All-Pro tackle Ndamukong Suh decided to leave the Detroit Lions he considered an offer from the Oakland Raiders. However, he ended up accepting an offer from the Miami Dolphins for $60 million.
A commentary on the sports website ESPN made the following point:
Florida doesn’t have any state income tax, so in order for the Lions and the Raiders to match the after tax net earnings on a $60 million guarantee, the Lions would have had to pay Suh approximately $64.9 million and the Raiders would have had to pay $70.1 million, said sports tax specialist Robert Raiola, senior manager at the accounting firm O’Connor Davis in New York.
The California Taxpayers Association published a more detailed examination of California’s tax rate on NFL player contracts:
All teams in the National Football League operate under a league-imposed salary cap, but because the cap ($143,280,000 for 2015) is not adjusted for states’ differing income tax burdens, California teams are at a disadvantage because the Golden State has the highest income tax rate in the nation. “Teams in states with low or no income tax have a huge advantage in that they can offer vastly more money to prospective free agents. The difference between teams in Washington, Texas, Tennessee, and Florida, where no state income tax is levied, versus those in California, which takes a whopping 13.3 percent, is staggering – $19.1 million. To put that difference in perspective, $19.1 million after taxes is more than any player in the NFL has ever earned per year, meaning teams in taxless states can essentially afford a California roster plus the most expensive player in NFL history on top of that each and every year.”
The state’s income tax may even cost sporting events to take place in California. While boxers Manny Pacquiao and Floyd Mayweather have finally decided to duke it out this coming May in Las Vegas, there was serious talk of a Pacquiao-Mayweather fight back in 2009. At that time, the Los Angeles Staples Center arena offered a $20 million site fee to host the event. As I wrote in my Fox and Hounds column at the time,Pacquiao’s business advisor threw cold water on the offer.
Noting that Paciquino would have to pay millions in taxes to California under the current 10.55% top tax rate, the advisor said the fighter didn’t want to fight in California when there were alternatives in no income tax states like Texas and Nevada.
And now the California tax rate is up to 13.3 percent.