• Hunter Parsons

Income Taxation’s Surprisingly Minimal Impact on Free Agency


After two months and approximately $2.5 billion, the buzz of NBA free agency died down as the 2021-22 season got underway.[2] While there was not the myriad of superstar signings that NBA fans have come to expect, the offseason brought another look into the financial effect that changing teams can have on players. A considerable source of this effect is income taxation, often removing a large chunk of players’ salaries. However, certain jurisdictions are much less imposing on players’ income than others.[3] That raises the question: do low-tax jurisdictions have an advantage? If so, does this impact NBA free agency?

The bar graph below shows the tax rate of the 23 NBA jurisdictions, excluding the four that impose no income tax at all (Florida, Tennessee, Texas, and Washington D.C.):[4][5]

Tax season for athletes does not stop there, however. Due to often playing more than half of their games in other states, players are also subjected to a “jock tax,” an income tax imposed on visiting athletes for each “duty day” in that state.[6] What constitutes a duty day can vary by jurisdiction, but it typically comprises any day (during the season) that the player spends in that particular state, including the pre-and post-season.[7] Therefore, if a player has 100 total duty days in a season with four of those spent in State A, the player will pay state income taxes on 4/100 of his annual income under that state’s tax rate.[8]

If that is not complicated enough, additional exceptions exist. [9] Some states do not impose a jock tax.[10] Others do not exempt players from their taxes when they are playing out of state.[11] As such, it is possible for players to pay taxes to two different states for one game’s work.[12] Even further, some cities have their own jock tax.[13] The NBA jurisdictions that do not impose a jock tax include Florida, Ontario, Tennessee, Texas, and Washington D.C, which are home to nine total teams.[14] From a net income standard, certain NBA franchises have a clear advantage over other jurisdictions.

Due to these wide-ranging policies, choosing one franchise over another can have serious implications on a player’s net income. For example, this offseason, the NBA saw long-time Toronto Raptor (and former Villanova Wildcat) Kyle Lowry leave Canada for the tax-free state of Florida to join the Miami Heat.[15] The effect that this move will have on Lowry’s earnings could be significant. The table below compares Lowry’s 2019 earnings while living in Toronto under a 20.53% tax rate, and Chris Paul’s while living in tax-free Texas:[16]

Though Paul’s salary was only $4.5 million higher, he walked away with $7.5 million more than Lowry after tax season.[17] Lowry’s new deal with the Heat reportedly pays him roughly $30 million per year.[18] Even though his salary slightly decreases from 2019, Lowry’s net income will most likely increase, thanks to Florida’s tax-free status.

It’s clear, thus, that a change in scenery can seriously impact a player’s paycheck. Despite this, there is not a strong correlation between signings and tax rate. Dating back to the 2018 offseason, 37 players signed deals worth $20+ million per year, not including contract extensions.[19] Of the teams with whom the deals were signed, the average jurisdictional tax rate was 6.61%, slightly above the league average of 6.12%.[20][21] During that span, five teams did not sign any of those 37 players: the Memphis Grizzlies, San Antonio Spurs, Minnesota Timberwolves, Portland Trail Blazers, and Washington Wizards.[22] Three of those teams – the Grizzlies, Spurs, and Wizards – have no state income tax.[23] If broken down by year, the average tax rate varies widely. From 2018 to 2021, the average falls as low as 5.14% in 2018 to as high as 9.18% in 2020.[24][25]

Over the last four years, tax policy has not played a significant role in free agents’ decision-making, despite the potential millions in savings. Lowry will certainly save his fair share of millions in taxes over the next three years, but his decision to join Miami likely had little to do with taxes. Even with the wide variety in rates, there has been little correlation between tax policies and free agent decisions in recent years. Therefore, it does not appear that income taxation has a substantial impact on NBA free agency.


[1]: The Philadelphia Inquirer, https://www.inquirer.com/sixers/nba-playoffs-toronto-raptors-philadelphia-sixers-76ers-kyle-lowry-jimmy-butler-20190509.html

[2]: Spotrac, 2021 NBA Free Agents, spotrac.com (n.d.), https://www.spotrac.com/nba/free-agents/

[3]: Katherine Loughead, State Individual Income Tax Rates and Brackets for 2021, Tax Foundation (February 17, 2021), https://taxfoundation.org/publications/state-individual-income-tax-rates-and-brackets/

[4]: Id.

[5]: Ryan Prete, NBA Superstars Face Tax Bills in the Millions, Bloomberg Tax (October 30, 2018), https://news.bloombergtax.com/daily-tax-report-state/nba-superstars-face-tax-bills-in-the-millions

[6]: Larry Coon, Larry Coon’s NBA Salary Cap FAQ, cbafaq.com (n.d.), http://www.cbafaq.com/salarycap.htm#Q78

[7]: Id.

[8]: Id.

[9]: Id.

[10]: Id.

[11]: Id.

[12]: Id.

[13]: Jesse Barnhill, Michael Jordan Accidentally Created the ‘Jock Tax’ and Hurt the Paychecks of Pro Athletes Forever, Sportscasting (November 13, 2020), https://www.sportscasting.com/michael-jordan-accidentally-created-the-jock-tax-and-hurt-the-paychecks-of-pro-athletes-forever/

[14]: Coon, supra.

[15]: Aaron Rose, Kyle Lowry Announces Signing with Miami Heat, Sports Illustrated (August 2, 2021), https://www.si.com/nba/raptors/news/toronto-raptors-kyle-lowry-signs-miami-heat-free-agency

[16]: Prete, supra.

[17]: Id.

[18]: Kyle Irving, Report: Kyle Lowry to sign three-year deal with Miami Heat via sign-and-trade with Toronto Raptors, NBA (August 6, 2021), https://ca.nba.com/news/report-kyle-lowry-to-sign-three-year-deal-with-miami-heat-via-sign-and-trade-with-toronto-raptors/1n1h4qd5os86s1ofuwvli4fopd

[19]: Spotrac, supra.

[20]: Id.

[21]: Loughead, supra.

[22]: Spotrac, supra.

[23]: Loughead, supra.

[24]: Id.

[25]: Spotrac, supra.