Tax Madness

Both sales and income tax are not necessarily at the forefront of people's minds when they hear March Madness. However, the annual tournament brings in more than 600 million dollars a year which can result in a lot of taxes. There are many different instances and situations in which people can create unexpected nexus, today we will be elaborating on a few sales and income tax implications.  

Income Tax Implications

For Athletes: 

As of the summer of 2021, collegiate athletes can now earn money from their name, image, and likeness (NIL). This tax season, athletes will not only potentially need to file income tax returns but also pay self-employment tax. Deductions, 1099’s, and exposure are all now issues to be considered, along with being a student and athlete. With this change in legislation, collegiate athletes are now subject to nexus when they travel, similar to professional athletes. This can result in having to pay income taxes in the state they go to school in and potentially multiple other states based upon NIL deals. 

Similar to professional athletes, collegiate athletes playing in different states could potentially owe income tax in those states, this could be from the arena they are playing in or potentially their sponsorship deals. Each state can and will have different rules for these types of activities. It is important to have a professional on your side to help navigate these muddy waters. 

For Fans: 

The winnings from sports betting are included in taxable income on both the state and federal levels. Reporting income can look different in each of the states. In some states, sports betting is not or not yet legalized. An estimated $10 billion dollars has been wagered for the 2022 tournament. This can result in a huge payout with a significant chunk going towards state income tax. Similar to sales tax, each state can have different income tax rates and laws. Depending on where you place bets is a determining factor as to how you will pay taxes. 

According to the federal government, if winnings exceed $600, federal taxes must be paid at a 24% rate. This applies to both cash and noncash winnings. In addition to federal taxes, each state has a tax percentage that must be paid. For example, the state of New Jersey has a withholding tax percentage but the state of Nevada does not. The determining factor of what state to pay the income tax to is generally based on where the bet was placed not where the bettor is from, there are also a few states that have alternative taxes that differ for residents vs. non-residents. 

Sales Tax Implications 

The annual March Madness tournament can bring in more than 600 million dollars. In the beginning stages of the tournament, games are played in states all over the country. This can create some questions as to the taxability of the tournament. Each state can tax goods and services differently. Some include the taxability of the ticket itself, the concessions, alcohol, merchandise/memorabilia, and even the use of the stadium. It’s not only sales of tangible personal property or services inside the stadium but outside the stadium as well as online. 

There can be many intricate aspects within the sales tax world that can be complicated to understand. Nexus can be created in the weirdest of situations. Staying abreast of the ever-changing sales tax laws is what we do! If you have questions, please reach out. We would love to work with you! 

By: Jayci Trujillo

This blog is intended for educational purposes and not as tax advice. Tax policies and procedures change frequently, so specific information, such as thresholds, rates, etc. included in this blog may have changed since it was originally published. Please request a consultation for more in-depth information.