Has it been a few years since your favorite NFL team made it to the Super Bowl? New research says it could be due to your state’s taxes. The recent tax overhaul, The Tax Cuts & Jobs Act, made several changes that negatively affect players who reside in states with a high personal income tax or high property tax. The Tax Cuts & Jobs Act eliminated or limited several deductions, including limiting the deduction available for state and local taxes.
Tax Economist Matthias Petutschnig of the Vienna University of Economics and Business research looked at overall team performance for two decades. His research showed that NFL teams based in high-tax states lost more games on average during the regular season compared to teams that were in low or no-tax states.
Petutschnig says this is due in part because of the NFL’s salary cap for teams. If the team has to give more money to players to compensate for the high taxes, it reduces how much they pay other players and lowers the talent level for the whole team. The Tax Cuts and Jobs act set a $10,000 limit for the amount of state and local taxes that a taxpayer can deduct on their federal tax return, which is a very small amount for NFL players who make millions every year. For example, a free agent looking at California would need to make 10-12% more than if they went and played in Texas, to compensate for their state tax bill. The new tax law also eliminated the deduction for unreimbursed employee business expenses, this would affect NFL players that deduct union dues or fees for agents, public relations, business management or off-season trainers.
When comparing teams, playing for a team in Florida, Texas, or Washington can have benefits because those states have no income tax. Whereas playing for one of the teams in California or Minnesota may have you forking over a larger amount in taxes. Now, most players don’t decide which team to go play for based on taxes, they’re more likely to weigh their chances of playing and winning before taxes.
In Petutschnig’s research, a California team, which faces the highest average tax rate, won on average 2.75 fewer games compared to a team in a low or no-tax state over 23 years of regular season. That means they were losing 17% of their 16-game season, which could keep them out of the Super Bowl playoffs. Petutschnig’s research found that in 2016, the average state tax rate for football teams that made the playoffs was 4.62%, while those who didn’t reach the playoffs was 5.93%.
There are exceptions to Petutschnig’s research. The New England Patriots recorded the most regular season and Super Bowl wins from 1994-2016, even though Massachusetts average state tax rate was 5.48%, pushing them above the median. Petutschnig credits the low annual salary Patriots’ quarterback Tom Brady takes, allowing his team to afford better talent.
Now taxes might not have as big as an effect on a team’s playoffs ability as much as we think, but it is still interesting how state taxes can affect our sports teams. If you need help figuring out your tax situation, Polston Tax can help! Call us today at 844-841-9857 or click below to schedule your free consultation! You can read more about the new tax laws affect on the NFL here.