When looking at college sports headlines, it's hard to ignore the fact that universities in certain states seem to be much more active in the NIL space. Florida, for example, seems to be in a disproportionately large percentage of headlines regarding name, image, and likeness. While there are a lot of factors that go into this, including the people supporting and promoting universities in Florida, one unanticipated factor might be giving Florida universities a competitive edge: no individual state income tax.
Admittedly, most college students probably aren't thinking about state income taxes when choosing which university to attend. At the same time, most college students aren't making seven figures. While a college athlete might not immediately think about state income tax laws when selecting a university, his or her parents and advisors hopefully are. This is especially important for those college athletes expecting to earn a significant amount of NIL money.
The wide variation in state income taxes could give universities in states without individual income taxes a unique competitive advantage. I'm not suggesting this will be the driving factor in whether a university's athletics department thrives or fails, but I don't think it should be ignored either.
Here's an example to show why student athletes should at least consider state income tax implications when choosing which university to attend:
Jenna Athlete is considering attending a university in Florida and a university in California. Due to the NCAA prohibition on recruiting, Jenna doesn't know the exact terms of NIL deals available at each school. Nonetheless, Jenna expects to earn about $1 Million in NIL payments in her first year regardless of which school she attends. Jenna visits both schools. She likes the coaches at each university, and both universities have excellent athletics facilities.
Prior to NIL, this example would basically boil down to which university Jenna liked more. Now that NIL is a factor, though, Jenna should seriously consider the tax implications of her choice. Everything else held constant, if Jenna chooses the California university, she can expect to walk away with roughly
$565,000* after paying federal and state income taxes. If she chooses the Florida university, she can expect to walk away with roughly
$671,000.* That is a massive difference, especially for a college student.
In the above example, Jenna Athlete should at least consider the significant tax implications if she chooses a Florida university over a California university. For whatever reason, she might ultimately choose the California university. However, she should at least be aware that this decision can lower her after-tax income by more than $100,000.
Universities in states with high individual income tax rates need to try even harder to ensure top-dollar NIL deals are available for their student athletes. Universities in states like Florida, Texas, Tennessee, and Nevada already have a slight competitive edge.
For now, state income tax might only be a factor in a few fringe situations. As NIL grows and becomes a more organized and established factor in collegiate sports, state income tax will play an increasingly important role.
*The numbers mentioned in this example are only rough estimates. These estimates assume that the student athlete is earning $1 Million and is filing individually in 2023, but the calculation is not exact and will vary significantly between individuals. These estimates should not be relied on in any way. The goal of the above example is solely to provide an example of how state income taxes might influence a hypothetical student athlete's decision of which university to attend.
