Student or Professional Athlete - Tax Implications in the United States If College Athletes Were to Be Classified as Paid Employees

By Bush, Joel | Labor Law Journal, Spring 2017 | Go to article overview

Student or Professional Athlete - Tax Implications in the United States If College Athletes Were to Be Classified as Paid Employees


Bush, Joel, Labor Law Journal


Introduction

For most of us making a high school athletic team is a big deal. For those skilled, hard-working and fortunate individuals that play sports at the collegiate level, their athletic abilities, coupled with their work in the classroom, can open up many doors to success in their future careers - even if that does not entail playing professional sports. For many, the key that opens the door is receiving an athletic scholarship from their university. For some of these student-athletes an athletic scholarship provides the only way for them to attend college given the perpetual rising costs of college tuition in the United States, with tuition, coupled with room and board, often running into the tens of thousands of dollars per year.1

Unlike non-athlete students who work (often times at multiple jobs) while going to school to pay for their tuition, where their wages are subject to income taxes, not only do athletic scholarships (which are only available at National Collegiate Athletic Association (NCAA) Division I and II schools) provide student-athletes with the means to attend university and earn their degrees, but they also provide this huge economic benefit on a tax-free basis.2 However, the economic benefits provided with an athletic scholarship often comes with a price - long hours of team practice, conditioning and traveling to road events. With these extensive time commitments comes the practical limitation for student-athletes of not being able to work to pay for any expenses not covered by the athletic scholarship.3 While these student-athletes on scholarship have long days balancing their required athletic requirements with those of the classroom, at some universities their work on the field or on the court leads to colossal amounts of income to their university via ticket sales, royalties from sports merchandise, and more importantly in the past few years, from television revenues.4

With this backdrop, in recent years many student-athletes have begun to flex their "legal muscles" in the courtroom and similar administrative venues to assert that they should be treated as employees of their university, based in part, on spending the equivalent time of a traditional full-time employee performing services for their team, and with that the right to establish and form a labor union like those on most professional sporting teams. This paper will serve to provide a backdrop of the highlights of these attempts of student-athletes to be classified as employees and to elaborate on some of the tax issues in play should these efforts eventually be realized - either through the courts or otherwise.

Similarities and Differences Between Traditional Professional Athletes and Student-Athletes

As discussed later in this paper in the analysis of New York state's tax rules for non-resident professional athletes, the context and understanding of what constitutes a professional athlete in the United States for tax purposes has been relatively straightforward prior to the recent challenges to the proper classification (employee or non-employee) for student-athletes. Traditionally the economic, business and tax side of sports simply had athletes who were under employment contracts with traditional professional teams / organizations (i.e., San Francisco Giants, Pittsburg Steelers, etc.) to perform athletic services for the team in return for a salary. While nowhere close in terms of dollars earned by many professional athletes, many collegiate student-athletes receive athletic-based scholarships that have economic value. At many universities the value of these scholarships runs into thousands or sometimes even tens of thousands of dollars a year.5 As such, compensation, either in the form of traditional wages or through scholarships, are present for both traditional professional and student-athletes. As discussed later, it is only the current tax law, the current structure of university scholarships and the classification of student-athletes as non-employees that currently makes the value of the scholarships non-taxable. …

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