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Esports join NFL, other traditional games as jock tax target

Esports_Fuel_vs_Excelsior_June-2019_wikipedia-commons
Millions are watching NFL playoffs today. But millions of other esports fans enjoy competitions like this match between Dallas Fuel and New York Excelsior at the Blizzard Arena in Los Angeles last June, the second season of the Overwatch League. Among those also watching esports closely are state tax collectors. (Image by Dallas Fuel via Wikipedia Commons CC BY 3.0)

Tonight, we'll know which two National Football League (NFL) teams will be in South Florida next month to play in Super Bowl LIV.

While you can never predict who'll win any game — just ask the previously heavily favored Baltimore Ravens — we can safely say that a couple of state and city treasuries will be winners today.

In addition to playing for pride and their respective conference championships, the NFL team members will get more money.

More money, regardless how it's earned, means more taxes.

And where it's earned also will mean more taxes taken out of the extended NFL season's extra paychecks, thanks to jock taxes.

Potentially high cost of home fields: Jock tax is the popular name for the collection of taxes from professional athletes and other entertainers when they make money in a particular tax jurisdiction, usually a state and some larger cities.

Since professional athletes and entertainment stars command so much public attention, states et al can collect these added taxes relatively easily.

AFC Titans Chiefs logo mashup croppedIn the American Football Conference (AFC) title game, Tennessee has no income tax, but the Titans are meeting the Chiefs on their Kansas City, Missouri, home field.

That means that players (and coaches, trainers and other on-field personnel) from both teams will pay taxes to The Show Me State, which has a top 5.4 percent rate, as well as Kansas City.

NFC Packers 49ers logo mashup croppedOver in the National Football Conference (NFC) match-up, the Green Bay Packers are in San Francisco. Win or lose, the Wisconsin NFLers, who at home face a top tax rate of 7.65 percent, will owe higher California taxes.

The Golden State's taxes go up 12.3 percent, the highest state income tax rate in the country, and have another 1 percent surtax tacked on for millionaire earners.

UPDATE: The AFC Champion Chiefs will host NFC Champs 49ers on Sunday, Feb. 2, at Hard Rock Stadium in Miami Gardens, Florida. 

Gamers now under the tax gun: Of course, few folks are concerned about the taxes that highly paid professional athletes face, both from their home tax collectors and other states and cities under jock tax rules.

But another group of competitors who get less public attention now are finding they are popular state tax targets, too.

More and more state tax departments are coming after esports players.

Esports, the shorthand name for electronic sports, are competitions using video games. They often are organized, multiplayer video game competitions, particularly between professional players, individually or as teams.

"While professional athletes in the NFL, MLB [Major League Baseball], NHL [National Hockey League] and NBA [National Basketball Association] — and entertainers — have been an attractive target to state tax collectors due to their public schedules and high salaries, gamers have been performing under the radar, until now," writes Ellen Zavian in The Washington Post.

"With the recent move to franchise type models for popular games like The Call of Duty League, Overwatch League and the NBA's 2K League, states are becoming more aware of when these esport competitions will take place within their borders, which teams have won big prizes, and more importantly, where the players are located," notes Zavian, a professor of Sports Law at George Washington University.

Growing gamer revenue: It could be big money.

Before this year, the Overwatch League was exclusively in California. Next month, it will launch with resident teams in multiple states. Most of the competition locations, including those outside the U.S. borders, like France and Canada, have statutes allowing them to collect jock taxes.

The only tax-safe places for the esports participants are Texas, with no income tax, and Washington, D.C., which is prohibited from collecting tax on nonresident earners.

One recent big esports winner found out just how big the tax bite on winnings could be.

Jay, aka Jay Won or @sinatraa on Twitter, took to that social media platform to bemoan that his take after winning the Overwatch League’s Grand Finals in Philadelphia in 2019 would be cut dramatically once taxes were withheld from his payout.

You don't need the mythical sarcasm font to know that Jay really doesn't think "getting taxed 55% of grand finals earnings" is "cool cool."

That 55 percent tax bite is this week's By the Numbers figure.

More players, more money, more tax collectors: Things likely will get worse from the tax perspective for esports players.

The whole field (which escapes me, but hey, OK, Boomer) is expanding.

The total esports audience is expected to grow 15 percent this year, to 454 million people watching others play fast-moving player-versus-player matches onscreen, either in person at tournaments or, more often, remotely through digital streaming services.

The estimated 2019 revenue of esports is expected to top $1.2 billion worldwide, six times more that reported just five years ago.

The pool of competitive video game players also is growing.

More U.S. middle and high schools are adding esports teams. Colleges and universities that field esports teams are offering millions of dollars in scholarships to those young players. At least a few of them will go on to play professionally and pay tax on their gaming proceeds.

Roger Quiles, founding partner of Quiles Law, a New York based esports agency, told Zavian that he can see a day where esports performances and competitions that solely take place on the Internet will begin to draw the attention of state tax collectors as well.

Who's really surprised?

Whenever money changes hands, either in old or very new ways, the tax collector generally is part of the transaction.

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Comments

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Shaban

That is a very high tax for people who rely on that money to make a living. The esports scene is not the same as the NFL. NFL players get serious contracts for their players while in esports some people barely make enough to live off of.

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