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Von Miller, DeMarcus Ware, and the rest of the Denver Broncos’ historically devastating defense harassed, hammered and battered 2015 NFL MVP Cam Newton into his worst performance of the season during the Broncos’ 24-10 victory in last weekend’s Super Bowl at Levi’s Stadium in Santa Clara, California. Newton didn’t do much to improve the situation when he sulked his way through his mandatory post-game press conference before abruptly leaving the podium after only a handful of questions. Unfortunately, the loss will do more than hurt Newton’s pride. Thanks to the California Franchise Tax Board, his three turnover performance will literally cost him money. Here’s how:
California is one of several states that tax a percentage of visiting athletes’ income based on how many “duty days” they spend in the state during a given year. The state’s “Sports Program” (detailed at: https://www.ftb.ca.gov/individuals/wsc/sports.shtml) defines a duty day as “any day services are performed under the contract from the beginning of an official preseason activity until the last game played. The duty days in California are then divided by the total duty days to create a ratio. This ratio is then multiplied by the total compensation. This then is deemed to be the California source income.”
It is estimated that Newton will have a total of 206 “duty days” in 2016. He spent seven duty days in California for the Super Bowl, and will spend four more duty days in the state because the Panthers are slated to visit both the Oakland Raiders and Los Angeles Rams in the 2016 NFL regular season. Therefore, 11 of 206 (or roughly 5.3%) of Newton’s duty days will be spent in California this year. Between base salary, signing bonuses and playoff bonuses, Newton should make about $23 million in 2016. 5.3% of $23 million is about $1.228 million. California’s top income tax rate is 13.3%, which means that Newton will pay roughly $150,000 in California income taxes in 2016.
So, how exactly did playing in the Super Bowl cost Newton money? Well, his bonus from the NFL for playing in, and losing, the Super Bowl was $51,000 (if Carolina had won, it would have been $102,000). If Carolina had lost the NFC Championship to the Arizona Cardinals, then Newton would only have four duty days in California out of 199 this year (instead of 11 out of 206). This would make his 2016 California income taxes roughly $55,000, instead of $150,000. Therefore, the Panthers’ seven day trip to Cali earned Newton $51,000 in income (not to mention a bruised body and a bruised ego), but will cost him an additional $95,000 in California state taxes. This makes Newton’s effective California state tax rate on his $51,000 Super Bowl bonus about 186% – and you thought Sweden had an oppressively high tax rate!
So, how does this apply to those of us whose glory days in sports took place on the Little League diamond or the church basketball court? Well, if you live in one state and earn income in another or moved from one state to another during the year, then you will need to determine how much tax is owed to each state and how credits for payments to one state or the other should be applied. The consequences usually aren’t as dire as a 186% income tax rate, but getting it right can save you money and will give you peace of mind in the event of an IRS audit. Because of this, it makes sense to get advice from a licensed tax professional if you have questions.
Jarom Bergeson is an associate attorney with Kyler Kohler Ostermiller, and Sorensen, LLP (“KKOS Lawyers”) in its Cedar City, Utah office and has extensive experience in helping client register their trademark and protecting their brand identity. He can be reached at [email protected] or by phone at (888) 801-0010.