Earnings Tax, Income Tax, and the Rams

The debate started with an off-hand comment from Gov. Jay Nixon.

In recent months, he’s held a series of press conferences to promote building a new riverfront football stadium. At one, he detailed plans to relocate utilities, clearing the way for construction. At another, he announced a deal with labor unions to work around the clock on the project, without overtime pay. Somewhere along the line, he said that if the Rams were to leave Missouri, it would cost the state $10 million in income-tax revenue.

That started a discussion in the SLM office about whether Nixon’s number seemed right. Eventually, the conversation expanded to include the city’s earnings tax and led to phone calls with local and state officials. A detailed breakdown is below, but here are three things we learned: 1) Rams players pay the city shockingly little in earnings tax; 2) Nixon wasn’t off by much; and 3) tax rules are complicated.

Well, I suppose we already knew that last part.

City Earnings Tax

It might surprise you to learn that Rams players pay the city’s 1 percent earnings tax only on game days. It certainly surprised me.

Because the earnings tax is paid confidentially, Deputy Collector of Revenue Tom Vollmer couldn’t tell us exactly how much the city makes from NFL players. But he made it clear that they pay far less than the millions that you might think.

First, let’s review how the earnings tax works for people who don’t play professional football. The city collects 1 percent of all wages earned either in the city or by someone who resides in the city. So if you live in Chesterfield and do all of your work downtown, the city taxes 100 percent of your earnings. Likewise, if you live downtown and do all of your work in Chesterfield, the city taxes 100 percent of your earnings. That’s simple enough.

Here’s where it gets a little more complex: Maybe you’re a construction worker who lives and works in the county, but you spend 30 days on a project in the city. Or maybe you’re a county-based plumber who comes into the city one day to fix a sink. In those cases, you would pay the earnings tax on only the wages that you earned in the city. It’s the same for the Rams.

Since the team’s practice facility and business operation are based in St. Louis County, players only pay the city earnings tax for the 10 days that they actually play games in the city (two preseason games and eight regular-season games). Visiting teams, which come in for two days at a time instead of just one, actually pay the city for more days worth of wages each year than the Rams.

Let’s say that a random Rams player makes $2 million a year. The 10 days that player works in the city would account for about $77,000 of his salary. (Vollmer says the city calculates this based on a standard 2,080-hour work year.) The city would collect 1 percent of that, a measly $770.

“That’s what people have to wrap their minds around,” Vollmer says. “Where everybody gets lost is, ‘Oh my God, these are multimillion-dollar guys. It has to be this huge amount of money.’ Well, we would be getting more revenue if the Rams were a city-based business.”

There is one major exception: If a player lives in the city, then he must pay the earnings tax on 100 percent of his salary. Among other factors, that might help explain why so many professional athletes live in the western suburbs.

And if you’ve always thought that the Cardinals meant more to the city than the Rams, you were right. Because the baseball team is based in the city, the Cardinals’ players pay earnings tax on about 50 percent of their salaries, exponentially more than the Rams.

But even if the football team doesn’t add much to the city’s earnings-tax coffers, Vollmer thinks the Rams are worth keeping around. “I would rather be a city with a sports team than without obviously,” he says. “It’s just part of that identity.”

State Income Tax

If the Rams played only home games, the amount of state income tax that players owed would be relatively simple to calculate. But because they play half of their games in other states, things become a little more tricky, as explained by Michelle Gleba, director of communications for the Missouri Department of Revenue.

The state taxes players based on the concept of “duty days,” basically the number of days per year that a player is contractually obligated to be in the home state, from the beginning of training camp to the end of the season. (The playoffs might complicate things a bit more, but as we know all too well, the Rams usually don’t need to worry about that.)

Let’s just say, for the purposes of this exercise, that the season is 180 days long. Each of those days is a duty day and represents 1/180th of a player’s salary. Except for the odd year when the Rams visit Kansas City, the team always plays 10 games here and 10 games in other states. Each of those trips lasts two days, which means that 20 of the 180 duty days are spent elsewhere. Missouri then taxes Rams players for 160 of the 180 days of the season. In other words, players would pay the 6 percent state tax on about 89 percent of their salaries.

Meanwhile, the state makes up for the money that it loses when the Rams go on the road by taxing visiting players, an arrangement often referred to as a “jock tax.” When Peyton Manning spends two days in Missouri for a game, he must pay our state’s 6 percent income tax on 2/180ths of his salary.

In 2014, Gleba says, the state “received approximately $18.4 million from all NFL players for duty days in Missouri.” If you figure that the Chiefs and Rams split that total about evenly, then the Rams (and their visitors) accounted for about $9.2 million in income tax, which is pretty close to the $10 million that Nixon claimed.

And to use Vollmer’s logic, while $10 million might be a sliver of the state’s overall budget, if you have the choice between having $10 million and not having $10 million, you’d probably take the former.

A larger piece of the puzzle probably comes from sales-tax income generated by the team. But that’s a discussion for another time.