Multi-State Tax Law Blog
A few weeks ago, I discussed the apportionment of NFL Players’ income for state tax purposes in the article “Saturday’s Challenge to Cleveland Income Tax for NFL Players.” The Supreme Court of Ohio determined that the proper allocation of an NFL Player’s salary is to take the number of work days in a state divided by the number of overall work days. For example, if a player spends 7 days in a state for work (more specifically, preparation for a game) and has 206 overall workdays, then the relative percentage of the allocated income to the state is 3.39%. As a result, each state can get their fair share of the NFL Player’s income.
Forbes Business published an interesting article claiming that if the Carolina Panthers were to win in Sunday’s Super Bowl, then Cam Newton’s effective tax rate would be 99.6%. Compare this to the outrageous effective tax rate of 198.8%. This does not even include the 40.5% Cam Newton would owe the IRS.
Taking a step back and looking a Cam Newton’s “incentivized” earnings, if (or “when” for all those optimistic sports fans out there) the Carolina Panthers win the Super Bowl, Cam Newton will earn Super Bowl winning bonuses of $102,000, add this to the mere $58,800 earned for Week 17 of the Regular Season and $71,000 of playoff bonuses to date. If Cam Newton and his Carolina Panthers lose, he will “only” earn a Super Bowl bonus of $51,000. This totals to $231,800 in earnings if Cam Newton were to win the Super Bowl compared to $180,800 if he were to lose. All of this is on top of Cam’s salary of about $10 million per season.
Now that I’m done throwing around numbers, how should we interpret Cam Newton’s salary? Cam Newton’s maximum NFL earning potential for 2016, excluding his endorsements (second in NFL for endorsements, only behind a player with the last name of Manning), could be as high as $23,231,800. Removing the fact that the Carolina Panthers are playing in against the Raiders and Rams next season, Cam Newton will likely spend 7 working days out of an expected 206 total working days in California. This equals a 3.39% apportionment factor, as detailed above. In other words about $787,558.02 of Cam Newton’s overall 2016 NFL income should be apportioned to California.
Why does California, specifically, have such a damaging effect on Cam Newton’s income? California’s income tax at 13.3% (12.3% plus Mental Health Services Tax Rate of 1% for taxable income in excess of $1 million) is the highest in the country. At that rate Cam might owe up to $104,745.22 if the Carolina Panthers win the Super Bowl. When comparing that to the income generated in California one can say that his effective income tax is almost 103%. If Peyton Manning and his Denver Broncos can settle the high flying Carolina Panther’s offense, then Cam Newton will owe 204.93% of his Super Bowl earnings to California. Obviously tax implications will motivate Cam to win on Sunday.
Gerald “Jerry” Donnini II is a partner of the Law Offices of Moffa, Sutton, & Donnini, P.A. Mr. Donnini concentrates in the area of Florida and Federal tax matters, with a heavy emphasis on the tobacco, convenience store and petroleum industries . He also handles a myriad of multi-state state and local tax issues. Mr. Donnini is a co-author for CCH’s Expert Treatise Library: State Sales and Us Tax and writes extensively on multi-state tax issues for SalesTaxSupport.com.
Mr. Donnini also regularly represents cigarette, beverage, and tobacco distributors against the Division of Alcohol and Tobacco in connection with refund claims and audit defense. While at Nova Southeastern University, Shepard Broad Law Center, Mr. Donnini was the Notes and Comments Editor of Nova Law Review and Vice President of the Sports and Entertainment Law Society. Prior to attending law school at Nova in 2008, Jerry was an accountant for National Retail Properties, Inc. Mr. Donnini earned his LL.M. in Taxation at New York University