In recruiting battle, lawmakers weigh whether to give college athletes a tax break on NIL earnings

CHICAGO (AP) — Illinois state Rep. Travis Weaver remembers how surreal it felt having Heisman Trophy winner Mark Ingram sit a few rows behind him in a political science class. He will never forget the pure joy in Alabama every time the Crimson Tide rolled to the national championship, either.

Weaver was there for two title runs as a student from 2010 to 2015. The way he sees it, coach Nick Saban and his players weren't the only winners.

“The city of Tuscaloosa, the state of Alabama, the employers who recruited the University of Alabama because there’s higher-caliber students there -- they all benefited massively because of the success of the football team," Weaver said. "Coach Saban made that a different school than when he got there. Obviously, the football team was better. But what I saw as a student was an entire community become much stronger because of that success.”

His college experience is driving the push he's now making.

Weaver wants to give an assist to Illinois schools and entice more recruits to stay home by exempting up to $100,000 in name, image and likeness earnings from the state income tax. In Georgia and Alabama, lawmakers are looking to eliminate income tax on NIL earnings altogether. There's a similar push in Louisiana.

Lawmakers see the legislation they are proposing as a way to level the hyper-competitive recruiting field if not gain an advantage. Their universities are going against schools from Florida, Tennessee and Texas, states where income is not taxed.

The measures could face pushback from other students who make money off their name, image and likeness such as social media influencers, actors and musicians. They might wonder why the quarterback and point guard are getting an exemption but not them.

There is precedent. In 2016, President Barack Obama signed a bill that eliminated the so-called federal “victory tax” on Olympic medalists, preventing the IRS from collecting on medals and prize money up to $1 million. Then again, state lawmakers have to decide if the proposed measures are worth the potential challenges even if they're on solid legal footing.

“The optics of it probably aren’t great for people that are YouTubers, and some college kids are paying in-state tax and some aren’t,” said Daniel Ryan, a former IRS attorney now at Sullivan and Worcester in Boston. “But I don’t know if there’s a constitutional issue that would prevent it from happening.”

Attorney Michael Rueda, a corporate partner and head of the U.S. Sports and Entertainment practice group at global law firm Withers, has worked with athletes and schools on NIL matters. He said states would “have to make the argument that there’s a legitimate rationale to distinguish between taxpayers.”

The income tax landscape

There are nine with no income tax: Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington and Wyoming. Though the idea of saving money might be attractive, accountants and attorneys who work with athletes and colleges say tax rates generally aren't at the top of their clients’ priority lists. They look more at their role, the team's competitiveness and their marketing opportunities.

In that sense, they're just like the pros.

“What seems to be the number one choice for them after you get past the money?" said Richard Koenigsberg, an accountant at Eisner Advisory Group in New York who has worked with college and professional athletes. "Because we have seen athletes turn down the highest-priced contract.”

As for a potential exemption on NIL income?

“Carson Beck -- did he go to (Miami) just to avoid Georgia income tax?" said Michael Guariglia, an attorney with McCarter & English in New Jersey who has worked with colleges on NIL. "I think it was more important to him to get the assurances that he was going to be their starting quarterback. Could it be a factor? Yeah, maybe. It plays into a lot of different things.”

Recruits from New Jersey, for example, who go to school in Florida still have to pay income tax in their state unless they change residence. And income for someone from Florida who goes to school in Jersey might still be exempt.

The tax break proposals

Athletes in Georgia, Alabama, Louisiana and, maybe to a lesser extent, Illinois who choose to stay home would be in for a break if the legislation passes.

In Georgia, where there's a flat rate of 5.39%, a recruit who stays in state would figure to save about $5,400 on $100,000 in NIL money. In Alabama — where it ranges from 2% to 5% for a single earner making more than $3,000 — the savings on $100,000 would be about $5,000. In Louisiana — which just implemented a flat 3% rate — that translates to $3,000.

The savings for athletes making seven figures in NIL money would obviously be much more significant; in Illinois, not as much since Weaver's plan would exempt only the first $100,000.

In that scenario, basketball or football players with their eyes on the NBA or NFL might still wind up paying state tax on at least a portion of their NIL earnings. Athletes with less lucrative deals might be completely covered and a little more inclined to stay in state as a result.

To Weaver, it's more about helping the mid-major schools in the state such as Bradley, Illinois State, Western Illinois and Loyola Chicago than the Big Ten's Illinois and Northwestern.

“If those schools are just a little bit more successful and you get that extra 10% bump in applications more periodically, they can help Peoria, Ill., Bloomington, Ill., Macomb, Ill.," said Weaver, a Republican from Peoria.

Though Weaver said the state would lose about $750,000 in income tax revenue, he considers it a worthwhile investment. He envisions increases in enrollment, attendance at games, merchandise sales, hotel bookings and more that come with success on the court and field.

Exhibit A: Loyola.

The Jesuit school on Chicago's North Side saw big jumps in applications and merchandise sales following runs to the Final Four in 2018 and Sweet 16 in 2021. Sister Jean bobbleheads and maroon-and-gold scarves became popular items.

“If we can help -- you pick the mid-major -- make the NCAA Tournament once every three years instead of once every five years, and that means twice as often they’re getting that 10% boost in applications, that could be something that really is a difference maker in keeping one of those smaller schools afloat for the long term,” Weaver said.

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