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Burr Takes Aim . . . This Time at Non-Taxable Scholarships

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On September 29, 2021 Senator Richard Burr (R-NC) introduced legislation that would cause student-athletes to pay federal income tax on athletic scholarships if those student-athletes earn more than $20,000 in receipts from monetizing their name, image, and likeness. The bill is intended to protect college athletic programs by incentivizing students to choose between a tax-free scholarship and exercising the right to profit from their own name, image, and likeness, the “NIL Scholarship Tax Act.” While it does seem likely that the bill will motivate the reallocation of scholarships, thereby giving athletic departments more tools to build strong programs, in some cases it may also strain college and university resources to comply with existing tax reporting regimes.

With National Labor Relations Board General Counsel memorandum 21-08 announcing, on the same day, that scholarship athletes at private universities are employees under the National Labor Relations Act (read more NLRB General Counsel Declares that College Athletes are Employees | Miller Nash LLP), any scholarships taxable under the NIL Scholarship Tax Act may be subject to income tax withholding and federal and state unemployment and payroll taxes, all of which must be reported in compliance with existing law.

Additionally, with many student-athletes performing services in several states, colleges and universities must be prepared to report and remit income tax withholding and related employment taxes to multiple states. Students, meanwhile, must also prepare and file (or hire a professional to prepare and file) income tax returns in those states (city- or state-imposed income taxes aimed at athletes for the privilege of performing within their jurisdiction are often referred to as “jock-taxes”). These jock-taxes are a by-product of Michael Jordan’s wild success as a professional basketball player and the Chicago Bulls’ 1991 NBA championship. In this respect, the vast majority of college athletes—those who will not pursue a career in sports—will at least share in the same tax burdens as the best to put on a uniform (…to be clear, still talking about Jordan).

Naturally, this may unintentionally produce an incentive for high profile players to join teams located in (and who play against teams located in) jurisdictions that do not impose individual income taxes—Washington and Florida, for example—and create a disincentive for those players to join teams located in states with relatively high individual income taxes—Oregon, New Jersey, and New York, for example.

In summary, there may be quite a bit more to Senator Burr’s proposal than meets the eye, and there will be quite a bit of change in the business of collegiate sports whether this proposal makes it into law or not.