California’s income tax rate drives NFL players away

Last month on CalWatchdog.com, prompted by the efforts to build a Los Angeles football stadium and lure an NFL team, I wrote on how Proposition 13’s tax-vote provisions were influential in the moves and counter-moves on the stadium debate over public funding.

But the state’s high income tax rates also are 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.

On the sports website ESPN, Chris Mortensen pointed out:

“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 guaranteed, 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.”

‘Advantage’

The CTA quoted Jim Pagels of Forbes, who wrote:

“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 cause sporting events not to take place in California.

While boxers Manny Pacquiao and Floyd Mayweather finally have 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 percent 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.”

Now, after the passage of the $7 billion tax increase from Proposition 30 in 2013, the California’s top tax rate is up to 13.3 percent.