About That “101.8% Tax” New Jersey’s Imposing on Peyton Manning’s Super Bowl Pay…

Cross-posted at Daily Kos but I thought it might be of interest to some here.

Over the last few days I’ve noticed a number of outlets pushing a story that, were Peyton Manning’s Broncos to lose yesterday’s Super Bowl in East Rutherford, New Jersey, Manning would owe the State of New Jersey more in taxes than he would be paid for the big game. The Broncos did lose — big time — and for conservatives across the nation this nightmare scenario has become reality.

Frankly, this story sounded like bullshit to me. And so it is, but bullshit of a sneaky kind that exposes right-wing intellectual dishonesty and prompts me to write wonkish posts. Keep reading for the details (WARNING: numbers ahead).

First, full disclosure: I am not a Peyton Manning fan, for a number of reasons. Foremost among them, I am a Patriots fan. Peyton Manning has been a key rival of the Patriots and their quarterback for over a decade. There have been many showdowns between the two, and although Brady and the Patriots usually beat Manning, but he beat New England just two weeks ago to end the season around here. Moreover, his brother is responsible for perhaps the toughest loss the fans of any pro football team ever have had to endure, then did it again.

Perhaps most important, he’s a Republican and a guy who makes $15 million a year to play football but still feels the need to make ads for Papa John’s. The company whose founder John Schnatter claims to be an evangelical Christian and then, in the next breath, says that providing health insurance to his underpaid workers under the ACA will force him to raise pizza prices.

Please. Schnatter is worth $600 million and lives in a 40,000 square-foot house with a private golf course, where he hosted a Mitt Romney fundraiser. Romney said of Schnatter’s house, no joke, “This is really something. Don’t you love this country? What a home this is, what grounds these are, the pool, the golf course…. This is a real tribute to America, to entrepreneurship.” As if everyone in this country really has a shot at that kind of wealth, or it can be had without screwing over millions.

Jesus would hit this Schnatter with a rolling pin if they ever discussed this, And if I were making $15 million a year and Schnatter asked me to shill for his lousy pizzas, I’d tell him to get stuffed. But I digress. This was about poor Peyton’s confiscatory tax bill, not the unsavory types with whom he pals around.

The original source for the claim that Peyton Manning would, if his team lost the game, owe New Jersey more in state income tax than he would be paid for playing in the game, was this Forbes piece.

How does this work? Like this. NFL players are paid under contract with their teams for the 16-game regular season. Each week they get a “game check.” When playoff time comes, they are not being paid under their normal contract. Instead, each player receives separate playoff game pay above and beyond the regular contract. Unlike normal NFL contracts, playoff game pay is identical for all players on a team. For each round of the playoffs, the amount goes up. For the Super Bowl, each player on the winning Seattle Seahawks will be paid around $92,000. Each player on the losing Denver Broncos, including Peyton Manning, will be paid $46,000.

By now you’re saying, “Fenway, this is fascinating. What does it have to do with Peyton having to pay a New Jersey tax of over 100% on his Super Bowl earnings?”

The answer is: nothing, except in the disingenuous right-wing mind. As the Forbes piece unfolds, it is revealed that Peyton Manning’s income tax payment to New Jersey will exceed the amount he’s being paid to lose the Super Bowl because…Peyton will have to pay a pro-rated share of his anticipated HUGE 2014 salary of $15 million.

Here’s how it works: Pro athletes are liable for income taxes in all jurisdictions in which they work. New Jersey has determined, like most states, that athletes should pay New Jersey income taxes on a pro-rata basis calculated by dividing (x) the number of days physically present in that state on game-related activities by (y) the number of days of total football activity for the calendar year.

If Peyton Manning were to retire tomorrow, according to Forbes his New Jersey tax bill for the Super Bowl would be $982. That’s because he would owe taxes on a pro-rated share of his 2014 football income, which would based only on this year’s playoffs. Peyton’s total 2014 football earnings, to date, are $111,000: the $46,000 for being on the losing side in the Super Bowl and $65,000 for two prior playoff games in January.

The New Jersey tax for income of $111,000 would be $4,629. But he’ll only owe New Jersey for a pro-rated share. Of the 33 days between the beginning of the year and the Super Bowl on February 2, Peyton spent 7 days in New Jersey on NFL-related activities. (This is because the NFL requires players to attend all sorts of events during Super Bowl week, and they must get used to practicing in the neutral site. This seven-day period will be important later in the story.)

Multiply the calculated tax of $4,629 by 7/33 (.212121), representing the proportion of the 2014 playoff “season” Peyton Manning is deemed to have worked in New Jersey, and you get $982 in tax owed. Nothing too bad about that.

But there’s a snag. Peyton Manning isn’t expected to retire. He’s expected to play next season. And, according to Forbes, Peyton Manning’s will owe New Jersey $60,229 in income taxes if he plays for Denver next year. That’s because, under the terms of his contract, Peyton Manning is to be paid $15 million next season. That would make his total football income for 2014 $15,111,000 (next season’s salary plus this season’s playoff haul; for these purposes we’re pretending the income from Papa John’s and other commercials doesn’t exist). That income level puts him squarely in the top New Jersey tax bracket (8.97%).

If Peyton returns to the Broncos, his relevant number of football season days for New Jersey taxes (the denominator in his “duty day” ratio) will be 200, obtained by adding the 33 days of the playoff season just concluded (January 1 to February 2) and the 167 days of next season that fall into calendar 2014 (from the opening date of Broncos training camp in July to December 31. These days, and the pay earned during them, count toward Manning’s NJ taxes for 2014.

(N.B. If he joins another team before collecting his next paycheck, his New Jersey tax calculation would be split in two. The aforementioned $982 for his time with the Broncos during the just-concluded playoffs, and a pro-rated share of his 2014 season earnings if he happens to visit New Jersey with his new team (e.g. 2/167, for 2 days in NJ/167 total football days with new team). If the new team doesn’t have a game in Jersey, then the “duty day” formula for the new team would have a numerator of zero (i.e. 0 days in NJ/167 total football days with new team), and thus no tax liability — to New Jersey, at least — on the $15 million earned next season.)

Assuming he plays for the Broncos, Manning will be returning to the same stadium in East Rutherford, New Jersey, for a game against the Jets. By coming back to New Jersey for the Jets game, he will spend another two working days in New Jersey. (Most road games are not the Super Bowl, with its seven-day on-site lead-up. A team arrives a day before, plays the game, and leaves.) If Peyton had to pay New Jersey income tax on his total football income for 2014, he’d owe the state $1.34 million in tax. Multiply that by the “duty days” ratio of 9/200 (.222222), because he spent nine days in New Jersey (seven for the Super Bowl and two for the Jets game) out of 200 total football days, and you get a bill of $60,229.

However – and this is where the right-wing is steamed – if the Super Bowl had been held elsewhere and Peyton owed New Jersey the taxes only on the fall 2014 game against the Jets, he’d owe Trenton a mere $13,384 (reached by multiplying his $1.34 million base tax by just 2 days in New Jersey out of 200 doing football). That’s $46,844 less than the $60,229 he’ll owe for playing in the Super Bowl and the Jets game. Ergo, Peyton will pay more to New Jersey in taxes for the Super Bowl ($46,844) than he made for playing in the Super Bowl ($46,000). Simple, right?

If you’ve read this far, you’ll know it’s not simple at all. Let’s unpack it a bit.

First, Peyton Manning’s New Jersey tax bill will be large because his 2014 income will be huge. This problem doesn’t arise unless you’re paying a pro-rated share of $15 million plus in taxable income. Nobody else on his team is facing this problem, because their total taxable income won’t be nearly as high.

So, yeah, if Peyton hung ‘em up right now he’d save himself about $45,000 in New Jersey income tax. But he’d but lose out on some $9 million in after-tax pay for next season. Making collecting that pay out to be a losing financial proposition for him is just silly.

Second, our perceptions of this story are warped because of the quirky situation where Peyton Manning – whose tax picture is very complex – is getting paid a smaller amount for playoff work early in the year (it’s only small relatively; $111,000 is more than most Americans make in a year), then a huge amount for regular season work later in the year.

If he were paid a million more for the Super Bowl, but his salary next year were a million lower, his taxable football income would be the same, as would the number of days spent in New Jersey and the number of days in a football season. His tax liability would be the same, but nobody would write stories about $46,844 in taxes on $1,046,000 in Super Bowl income. In the end, this is a story of a guy making over $15 million this year who will pay 8.97% tax to New Jersey on a pro-rated share of his total football income for the calendar year. Period. The “101.8% tax” on his Super Bowl check is just a quirk of numbers.

Third, the big problem here is the “duty days” formula. Peyton’s tax to New Jersey is higher because he had to spend seven days in New Jersey during Super Bowl week. Even if Manning didn’t come back to New Jersey for another game, as long as he played for the Broncos next season he’d still owe $46,844 on just $46,000 of New Jersey “income.”

On the other hand, if he’d spent just two days in New Jersey for the Super Bowl instead of seven (as he would for a typical road game, even in the playoffs), then another two days when playing the Jets later in the year, his duty day formula would be 4/200, not 9/200, and his New Jersey income tax would be over $23,000 lower, with only half – $13,384) “attributable” to the Super Bowl earnings. Again, bye-bye right-wing outrage. (I use quote marks for “attributable” because the Super Bowl check is not treated as separate income for tax purposes; it’s just lumped in with all other football pay and a player’s tax liability is determined by proportion of time spent working in the state.)

Let’s be clear: Chris Christie didn’t make him spend seven days in Jersey during Super Bowl week. Those seven days were essentially mandated by the NFL, a private organization, because they help generate the media hype that enables Peyton Manning to be paid $15 million a year. That same private organization decided to hold the Super Bowl in New Jersey, and decided to send Peyton Manning back there next season for a game. I didn’t see any outrage directed at the league among the right-wing commenters.

Fourth, this is not a New Jersey phenomenon, nor is it unique to Peyton Manning. Manning (or any other player with a similar 2014 salary) would face largely the same situation with any state that assesses an income tax and hosts a Super Bowl. For example, he’d have paid seven days’ worth of income taxes if he’d reached last year’s Super Bowl in Louisiana. That’s because the base days (33 + 167 = 200) and the days in the Super Bowl state (7) would be the same no matter where. The Forbes writer, responding to some of his rabid commenters, actually made this point.

It’s true that Manning has to pay somewhat high Jersey taxes for seven days and he’d not owe if the Super Bowl had been held in a state with no income tax, but that was always going to be the case. Again, the NFL picked the site.

Likewise, if Tom Brady and the Patriots had beaten Manning’s Broncos in the AFC Championship Game, Brady would face the same tax issue. He’s not expected to retire or join another team either and his 2014 salary will be in the same range.

Most blogs on the right also omit that if Manning spent only two days in Jersey, staying home in Colorado for the other five days, he’d pay the taxes to Colorado. Granted, Colorado has a lower rate, but them’s the breaks. More importantly, Manning’s not losing a penny here, because he’ll get a full credit for the taxes he’ll pay to New Jersey on his income tax return in Colorado – where he earns most of his football income at a relatively low 4.63% tax rate. The loser from New Jersey’s having a higher income tax rate is not Peyton Manning, it’s the Colorado treasury.

None of this stopped the story from being picked up by nearly every right-wing site out there. Fox Business, check. Breitbart, check, with the headline “CONFISCATORY.” Daily Caller, check. Reason blog, check. Town Hall, check.

I think the original Forbes piece was meant more as a thoughtful look at an odd situation. But I’m sure the folks running that fine publication were not surprised to see the Outrage Machine took it to new heights. The comments – on Forbes and elswhere – are full of rants about how all athletes should refuse to play in New Jersey, how the Broncos should have boycotted Christie’s socialist hell, etc. (judging by last night’s game, maybe they did). The Right-Wing Outrage Machine has done its job well once again.

I wish they’d channel some of that sympathy toward people struggling to make it now that unemployment insurance has been cut off for the long-term unemployed, and not toward a guy who’s made almost $200 million – and counting – playing football and pulls in an estimated additional $12 million a year in endorsements. A guy who lives in this 16,000-square-foot house, which ran a cool $4.6 million, during the football season and has a few other places to go during the offseason.

Look, I’m not going to say Peyton Manning’s not a great quarterback. And I’m not going to make the case that he’s overpaid. Sure, the salaries paid to top athletes are horribly out of proportion with what our society pays teachers, firefighters, social workers, etc. But a person like Manning has a rare skill that he puts to use in a job that draws in hundreds of millions of customers, generating billions and billions in revenue. If Peyton Manning and his fellow players don’t get some of that it stays with the owners, who are far, far richer. All I’m saying is that we shouldn’t cry for Peyton Manning because of his tax bill, nor should we believe the hype about the “101.8% tax” New Jersey’s imposing to punish the successful.

And as for Peyton Manning himself, I’m confident he’s disappointed today because he wasn’t able to win the Super Bowl, not because he has to pay his taxes to New Jersey.


26 Comments . Leave a comment below.
  1. It does seem a little convoluted.

    First do all states do this? Does every professional athlete have to pay state income taxes to every state in which he plays in a given year? That doesn’t seem right. You should only have to pay to the state in which you reside and the state in which your team is located, which is probably the same state in most cases. At very least NJ should only get to tax the money he makes for playing in NJ: the Super Bowl plus the per game rate for any regular season games he plays against the Jets in the fall.

    • Pretty much all states do this

      Manning would owe NJ a lot more if they went for a “per-game” rate. If they just took 1/16 of his 2014 base salary, they’d be taxing on $937K and the tax would be over $84,000, plus a few hundred in taxes on the Super Bowl check. He’d owe NJ another $25K, and Colorado (where he spends 5 days of 7 on the week of a road game) would be losing taxes on all the road games – half his season.

      The denominator has all sorts of practice, training camp, pre-season days factored in. The whole issue is that it’s hard to evaluate which days athletes are “working” or which proportion of their pay goes to a game.

    • thats the way the system works

      I’m sure it keeps legions of accountants busy.

      Tom Hanks skipped out of NYC movie preview to avoid taxes.

      My company cannot sell to the state or municipalities in NJ – because they require us to file a corporate tax return – even if we sell them something worth $1.00. Corporate tax return cost probably $3,000.00 to $5,000.00.

      • Maybe that's why....

        I’m sure it keeps legions of accountants busy.

        Tom Hanks skipped out of NYC movie preview to avoid taxes.

        … Peyton Manning left the game just before halftime…

    • This makes sense

      The law is not “you should only have to pay to the state in which you reside and the state in which your team is located” for anyone, including ordinary citizens. If you live in New Hampshire (no income tax) and you work for a New Hampshire roofing company (no income tax), but you get assigned to a yearlong roofing job in Massachusetts, my understanding is that you are supposed to pay income taxes to Massachusetts.

      I think that this is more heavily enforced for actors and athletes because the salaries are so much higher than roofers and the time spent in other jurisdictions is public and easy to find out (sports schedules, production schedules, etc.). I think it makes some sense, because without such a law, this would encourage both people and corporations to establish legal residences in no-tax states but work in high-tax states without paying income tax. It’s one of the prices we pay for having state laws.

      • I'll need to ask my father about this.

        For a while when I was growing up he was with some regularity sent on out of state business trips. I don’t recall him paying income tax to multiple states, but of course I really wasn’t paying attention to my family’s tax situation either.

        • Many years ago, when I worked for KPMG

          my boss was a partner, and as a partner in the firm, he had to file state income taxes in all the states in which KPMG had a permanent office. I would suspect that this is similar to this situation, but who knows.

          • Its called Nexus

            If a state believes you have a physical presence in their state they believe they had the right to tax you. It can get very expensive – especially for small businesses.

            The state of Louisiana for awhile decided if you attended or exhibited at a trade show in their state you should pay taxes . I believe they have stopped this practice as exhibitors were threatening not to attend.

  2. You stopped DFW cold in his tracks from even bothering to link to this ‘fauxutrage’ before it even started. The Bush Doctrine of pre-emption remains discredited for foreign policy, but you just proved it works for right wing trolls.

    • You spoke too soon

      Nothing can stop the Suburban Sisyphus from trumpeting the latest breitbartian blast. Assail him with facts; he shrugs them off – it doesn’t matter if they’re presented before, during, or after he gets wound up, because their only function is to be distorted to support his mission .

  3. So the story is true

    Manning could not step a foot into NJ, but NJ wants a piece of his entire years salary, not just the income he earned playing in NJ. I would be upset and next time, the Super Bowl should be played in either FL or TX, where there is no income tax.

    I was going to write about how cool Joe Nanath’s coat was but took a pass.

    • The number thing

      Still challenging, eh?

    • As I read fenway's analysis, NJ is taxing Manning's income,

      pro-rated for the time he spent working in NJ. My only problem with that would be if Manning were somehow forced to pay state taxes to Colorado for that same period of time that he was being taxed for playing in NJ, in which case he would be paying state taxes twice on the same income. I don’t think that will be the case, however, but maybe fenway can clarify that for me.

      • Manning earned $49K by playing a game in NJ, not $15 million

        That’s the nugget NJ wants a piece of. I find it outrageous. After reading the entire diary and following all the numbers, it ends up being true.

        • That's the way state and federal taxes work, Dan.

          Taxes are based on your total income (minus deductions). In this particular case, NJ is pro-rating the amount owed it for the time Manning spent working in that state.

        • No, he didn't

          Manning’s salary is for one season’s worth of football, including the playoffs (if applicable).

          Manning could not tell his team “sorry, if you’re only going to pay me $49k for the Super Bowl, I’m holding out – if you want me to play, you’ll need to kick me at least another million” – they would have sued him for breach of contract.

        • Follow these numbers

          Let’s do it your way. Let’s tax only the money “earned in NJ,” meaning the Super Bowl check and the fall 2014 game check. The NJ taxes on the $46,000 for the Super Bowl would be $1,918. But then he comes back in the fall to play the Jets. If you consider the game against the Jets 1/16th of the season and tax 1/16th of his $15 million salary, he’d be taxed on $937K. The tax would be $84K. So his total bill would be about $86K to NJ, far more than the $60K he’ll pay doing it the way they do it now. If he wants to send another $26K to NJ, he can be my guest.

          But if they did it that way, he’d have no end of headaches. If he paid taxes to New Jersey on his Jets game check, Colorado could say, “Look, he spent 5 days out of that week here in CO, but NJ’s getting tax on all of it. With him playing half his games on the road, that’s 40 days of football season (5 per week x 8 road-game weeks). That’s more than 1/5 of the total days that he’s in CO, but some other state is collecting the taxes. Screw that. You’re spending those days working here, we’re charging you too.” And then the athlete runs the risk of double taxation, or having to litigate it with multiple states.

          It’s done that way because it’s difficult to determine what % of a “game check” should be attributed to the game itself as opposed to all the prep. If it’s 100%, then Colorado gets nada for the five days of prep, practice, etc. he did there before every road game.

          You could pick some arbitrary percentage, but states would disagree on the percentage. It’s far clearer to divide the year by days. That gives a basis for the state’s jurisdiction and it’s administratively easier, since it’s verifiable and you can only be in one state at a time (they have rules governing treatment of travel days). No fighting over what should be counted where.

      • He gets a credit for CO

        His Colorado income tax is credited for the money he pays to NJ, up to what the tax would have been in CO. He is not double-taxed.

  4. I'm still working on the fact that:

    Peyton’s total 2014 football earnings, to date, are $111,000: the $46,000 for being on the losing side in the Super Bowl and $65,000 for two prior playoff games in January.

    That’s on top of his regular $15 million a year contract, right? Not a bad deal at all.

    Frankly, I think that not only should Payton pay the $60,000 in taxes to NJ, but he should give the $46,000 he got for playing in the Super Bowl back to the fans in Denver, with an apology for the way he stunk up the joint.

  5. All true

    And well done.

    I am not sure why it is that professional athletes get singled out in this way. Someone in another line of work who is sent to NJ for an afternoon meeting for work doesn’t have to pretend that they earned 1/365 of their salary in NJ that year.

    This system must be a joy for baseball players, who do more travelling, and also have to deal with Canadian taxing authorities.

    • It would be applicable

      to anyone in theory. In practice it’s too much hassle to track everyone down and make them file. If someone makes $200K and spends a day in NJ, you’re talking about 0.3% of their year. The NJ tax on $200K would be ~$17K, and 1/365 (or even 1/250) is maybe 50 bucks. Not worth chasing down since it all (mostly) evens out. A place like NYC might have more short-term business visitors than, say, Bismarck, but they’re getting the boost to the local economy from those folks anyway. Not worth the cost of chasing down income tax.

      My theory is that with athletes it’s different. They’ll not escape notice because the numbers involved are so large. It is worth going after. And it’s a well-established principle that, if you work in a state, you’ll have to pay taxes to that state. But with athletes it’s hard to break up where the work is done. Do you count just the games or all the prep time? So they break it up by days out of the relevant season, which as I said in my comment above actually avoids even knottier problems for the athletes, particularly football players with only one game a week.

  6. On the other hand, Roger Goodell

    makes $30 million a year, and the NFL pays bupkis in taxes. Thank Elizabeth Warren for teaming up with the odious Tom Coburn to address the NFL’s non-profit status, which allows Goodell to make more money than any player in the NFL.

    The L.A. Times reports that

    20 of the 24 states with franchises in at least one of the four major pro leagues — the NFL, NBA, NHL and Major League Baseball — have laws that require visiting athletes to pay state income tax for each game they play there.

    Considering that top-level athletes in football, basketball, hockey and baseball now make an annual average salary of $2.9 million, that means big bucks for states such as California. Home to 15 major professional teams, the state raked in $102 million in taxes from visiting athletes in 2006-07, the last year for which records are available.

    As salaries have skyrocketed, the so-called “jock tax” has become widespread and controversial. Its imposition has raised questions of fairness and, for tax expert Joseph Henchman, has laid waste to the once-revolutionary prohibition on taxation without representation.

    “Politicians are seeking to shift tax burdens to people that don’t vote,” he says. “It does create a rather disturbing trend because it essentially allows politicians to provide more government services than [citizens] are willing to pay for.”

    Oliver, who still resides in Texas during the off-season, is one of few pro athletes willing to speak publicly about the subject, with most who decline saying they’re wary of making their lucrative contracts sound like a burden.

    “Nothing surprises me that the government does to try to get some money,” says Oliver, who will make $3.665 million this summer. ” . . . The common person, they’re not going to feel sorry for us. And if I was that person, I would be saying the exact thing. I can see both sides of it.”

    In the tax world, it’s no secret that athletes are treated differently from other highly paid workers — investment bankers and corporate lawyers, for example — who also work in multiple states. The jock tax, critics say, is poorly targeted, arbitrarily enforced and unrealistically burdensome — and also completely understandable given the current economic climate.

    • Henchmen's argument makes no sense

      If I work in MA but live in NH, I pay MA income tax though I don’t vote in MA. NJ residents pay NY state income tax if they work in Manhattan. Don’t vote there. You pay tax there because you’re earning the income there. Don’t want to pay income tax there? Find a job elsewhere.

      Mr. Oliver wants to make millions in a league that wouldn’t exist without the fans and media markets of California, New York, etc.. He wants to make part of his very good living doing his job there. But thinks he’s being ripped off? Sorry.

      • "I pay MA income tax though I don't vote in MA"

        It occurs to me that violates the principle of no taxation without representation, which I distinctly recall said state going to war over a couple of centuries ago.

        • Not the same thing

          The issue there was that the British Parliament was passing laws that affected the entire population of Massachusetts, which had no say in that body. It would apply if Massachusetts voted to tax all New Hampshire residents. But it hasn’t. It taxes income earned by Massachusetts residents, or income earned in Massachusetts. That’s legitimate.

          I don’t think people should be able to take advantage of the job market here, earn their whole living here, and go hide in New Hampshire instead of pay their taxes. If it’s so important to people who work in Massachusetts to have a vote here, they can move to Massachusetts. In 1775 nobody really worked in one state and lived in another.

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