We’ve previously posted about the City of Cleveland income tax refund claims brought by two former National Football League players, the grant of those refund claims by the Ohio Supreme Court, and the denial of Cleveland’s petition for certiorari by the United States Supreme Court.  As detailed in these prior posts, the Cleveland income tax refund claims were brought at the behest of the MLB, NBA, NFL, and NHL players unions, the games played methodology used by Cleveland generally results in greater income tax receipts for the state or local taxing jurisdiction than does the duty days methodology favored by the players unions, and state and local taxing jurisdictions are unlikely to avail themselves of the games played method for apportioning player salaries in light of the result of the Cleveland income tax refund claims.  Now comes an interesting postscript.

As reported by Bloomberg’s Daily Tax Report and Law360.comSuper Bowl L[1], which was played in Santa Clara, California, had a clear winner (aside from the Denver Broncos) – the California tax authorities.  Based on California’s 13.3% top marginal income tax rate and the State’s application of the duty days formula, many players from the Broncos and Panthers will owe more in California income tax for 2016 than they received in bonus compensation for playing in Super Bowl L ($51,000 for each member of the Panthers and $102,000 for each member of the Broncos).

Ironically, if California used the games played methodology for apportioning player salaries to the State, each player’s California income tax base for playing in Super Bowl L would be the bonus compensation paid for that game, rather than the player’s salary for the entire year.  Each NFL player’s compensation is for the pre-season and regular season.  If a team qualifies for the post-season, the players on that team are compensated for each post-season game through the payment of bonuses for each post-season game (with the amount of the per-game bonus increasing the farther the team advances in the playoffs).

Thus, unlike the duty days formula, the games played methodology would not in the case of post-season games result in the apportionment of a player’s pre-season and regular season salary.  Instead, the only income that would be subject to income tax in respect of the post-season game would be the bonus compensation for that game, which would generally result in less state or local income tax than would an arise under the application of the duty days method of apportionment to a player’s pre-season and regular season salary and post-season bonuses.

Yet another example that one should always be careful for what one wishes.