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August 16, 2017

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Pro athletes won’t pay income tax in Nevada, but there’s a bigger picture

Image

Marcio Jose Sanchez / AP

In this Nov. 27, 2016, photo, Oakland Raiders quarterback Derek Carr celebrates after throwing for a two-point conversion against the Carolina Panthers in Oakland, Calif.

The arrival of the Vegas Golden Knights this year and the Raiders in three years will excite local sports fans, but the players might feel equally giddy about the prospect of calling Nevada home.

As one of seven states that does not tax personal income, Nevada offers an attractive bonus for the hockey and football players. The Raiders in particular will see a major change in tax liability — California imposes a 13.3 percent income tax on earnings over $1 million, and 24 players on the team’s roster will make at least that much this season. Even rookies making the NFL minimum of $465,000 face a state tax rate of at least 10.3 percent.

Quarterback Derek Carr tops the heap with a newly signed $125 million contract that will pay him close to $25 million in 2017. According to an analysis of Carr’s contract done for ESPN by accountant Robert Raiola, the quarterback will see tax savings of more than $7 million in the final three years of his contract from 2020-22 after the Raiders move to Las Vegas. Raiola’s analysis also showed that Carr will net more after taxes from a $20 million Nevada salary ($11.54 million) than from a $22.5 million California salary ($11.15 million).

THE JOCK TAX

Michael Jordan soared through the air and captured imaginations throughout the world in 1991 as he led the Chicago Bulls to the NBA championship against the Los Angeles Lakers. Jordan brought home the trophy, but left behind quite a bit more after paying California’s newly imposed “jock tax.”

Legislators in the Golden State decided to capture new income by taxing professional athletes for the days they played games in California. This essentially treated visiting athletes as employees generating income while working in California, subjecting a select group of millionaires to a hefty tax.

Numerous states now utilize a jock tax, meaning traveling athletes must pay in a dizzying amount of jurisdictions.

Ryan Losi, a Virginia-based CPA who works with pro athletes, shared how many jurisdictions they file in by sport: NFL, 10-12; NHL, 14-16; NBA, 16-20; MLB, 20-26.

They might not pay income tax in Nevada, but ...

While professional athletes living in Las Vegas won’t pay taxes on their Nevada income, they will contribute to state coffers through property taxes if they own homes here. When Nevada housing values soared before the recession, property taxes followed and threatened to saddle homeowners with massive annual bills. State lawmakers enacted property tax caps in 2005 to protect against that.

If a powerhouse athlete bought a $1 million home in the valley, he would pay $12,600 a year in tax on the property based on Nevada's max property tax of around 3.6%.

FOLLOWING THE MONEY

An analysis by the Tax Foundation showed that if Carr and the Raiders played their 2017 schedule in Las Vegas instead of Oakland, the quarterback would save more than $3 million in taxes. The report estimates Carr will pay more than $3.3 million in state income tax on that $25 million salary this year. As a Nevada resident, Carr would owe just $158,469 in jock taxes.

Here is the foundation’s breakdown of what Carr would owe in jock taxes to cities and states where the Raiders play regular-season games this year:

• California: $33,886 in state tax, $0 in local tax, $33,886 total

• Colorado: $17,363 in state tax, $0 in local tax, $17,363 total

• Florida: $0

• Maryland: $19,948 in state tax, $12,000 in local tax, $31,948 total

• Missouri: $22,274 in state tax, $3,750 in local tax, $26,024 total

• New York: $24,762 in state tax, $0 in local tax, $24,762 total

• Pennsylvania: $11,513 in state tax, $12,995 in local tax, $24,508 total

• Tennessee: $0

• TOTAL: $129,746 in state taxes, $28,745 in local taxes, $158,491 total

WHAT THEY MAKE

It’s difficult to pinpoint average salaries for athletes playing professional football or hockey in the U.S., but here are estimates, and listed earnings of those at the top of the industries this year.

NFL average salary: $2.4M

NFL highest salaries for 2017

1) Derek Carr, QB, Oakland - $25M

2) Andrew Luck, QB, Indianapolis - $24.6M

3) Carson Palmer, QB, Arizona - $24.4M

NHL average salary: $2.9M

NHL highest salaries for 2017

1) Patrick Kane, right wing/center, Chicago - $13.8M

1a) Jonathan Toews, center, Chicago - $13.8M

2) Jamie Benn, left wing, Dallas - $13M

2a) Anze Kopitar, center, Los Angeles - $13M

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