Whether the Chiefs win or Lose the State of Missouri is the big winner on Sunday.
Introduction
Win or lose the State of Missouri will cash in this weekend with the Kansas City Chiefs appearance in this year’s Super Bowl. With the game being played at Raymond James Stadium in Tampa Bay and in a state with no income tax the additional bonuses the players earn this weekend will go directly to their state of residence, which in nearly all cases for Chiefs’ players will be Missouri. Although the cash payout to the state will be greater should the Chiefs win – win or lose, Missouri is to receive a nice cash payout.
Resident Tax
State or city residents are required to pay tax on their worldwide income despite where it was earned, while non-residents are only required to pay tax on income earned while in that jurisdiction. Therefore, Chiefs’ players may escape non-resident tax in Florida, however that income will now be included in their income and taxed in their resident state. Should the Chiefs win on Sunday each player will receive a bonus of $124,000 and that income will create $354,888 in additional tax revenue for Missouri. Should the Chiefs lose on Sunday, each player’s bonus will only be $62,000, yet Missouri will still collect an additional $177,444.
Jock Tax and Resident Credits
Non-resident tax on professional athletes is generally referred to as a ‘jock tax’. Athletes are required to pay a ‘jock tax’ on earnings in 18 of the 23 state in which the NFL plays. To avoid double taxation each state including Missouri, implements their own non-resident tax credit for taxes paid to other states. Although these credits are to eliminate double taxation, they are imperfect and in many cases are not dollar for dollar with the credit, therefore they do not fully eliminate the additional jock tax.
Duty Day Allocation
Income earned as non-residents is allocated to that state through a duty day allocation. Players are paid over the length of the season and their income is allocated into each state they perform services in. A percentage is computed by counting the number of days they are in each state in relation to the total number of days in the season. The formula, known as duty day allocation, takes into consideration all the days the athlete was required to participate in team activities, including the preseason and postseason. Therefore, for every day the season is extended the duty day allocation into each state is impacted.
Missouri’s Non-Resident Tax Credit
In addition to the tax Missouri will collect from the Chiefs participation in the Super Bowl, there is an unintended result with Missouri’s tax credit for the ‘jock tax’ paid. Missouri’s non-resident tax credit takes the duty day allocation of income earned in other states and from that percentage applies a credit.
By advancing to the Super Bowl, Chiefs players have lowered their allocation only slightly – however under Missouri law, the amount ends up being significant and limits the amount of credit for taxes paid to other states. The below table shows how the additional days effects the Chiefs’ duty day allocation.
By increasing the total number of days in the season by two weeks the percentage of income earned in non-resident states decreases by only .005% yet in Missouri’s tax code this proves to be significant as the state rounds their allocation to the nearest percentage.
Therefore, by playing in this year’s Super Bowl, Missouri has lowered their player’s non-resident allocations by one full percentage and therefore limits the tax credit given to these states. The result is a loss of $237,122 in non-resident tax credits to the players should the Chiefs win and $251,167 should they lose.
When you combine the loss of credits with the additional revenue generated from the bonuses earned in the game on Sunday the result is that Missouri generates an additional $592,010 should the Chiefs win and a respectful $428,611 should the Chiefs lose.
Conclusion
By playing in the Super Bowl, the Chiefs generate over $592,010 in additional tax revenue for Missouri and even if they lose the State will receive $428,611. This goes to show that win or lose the big winner in Sunday’s game is the State of Missouri.