Usain Shrugged

[Bob M]

WHAT IS USAIN BOLT'S TAX PROBLEM?
Like most other countries, the UK charges tax (currently 50 per cent) on the appearance fees and prize money of sportsmen and women when they compete here. But unlike most other tax authorities, Her Majesty's Revenue and Customs also demands a cut of an individual's money from sponsors such as sportswear manufacturers, watchmakers and purveyors of shaving products.This is worked out by dividing the number of days a sportsman competes in the UK by the number of days he competes elsewhere.

ISN'T THAT FAIR?
It depends on your point of view, but, as the BBC reports, for someone like Usain Bolt, who earns an estimated £10m a year and only competes on about 10 days, the tax bill could be disproportionately high. As a tax expert from Deloitte told the Today programme this morning, Bolt's appearance fee is £100,000 - a sum that would be dwarfed by his tax bill if he competed here.



Read more: http://www.theweek.co.uk/olympics/london...z23iMIvVeT

[bean]

I work summers in one state and live in another. I only pay taxes in my home state. A CPA does my return so I'm pretty sure it's being done right. Are you saying I am supposed to pay taxes to both states?

[C_Fresh]

(08-16-2012 08:03 AM)dramaturge Wrote:  

(08-16-2012 07:41 AM)C_Fresh Wrote:  See my post above. Britain demands to be paid a portion of proceeds from endorsements and such as well. And they get their amount by dividing annual income by competition days.

That's only for the days in which they are competing in the UK, not all the endorsements and such all year. They don't get their amount by dividing income by competition days, they get their amount by dividing competition days in the UK with competition days elsewhere. Thus, if they compete in the UK a tenth of their competition days, the athletes are taxed on a tenth of their endorsements, etc. That's the way the awkwardly phrased explanation seems to me. So Bolt wouldn't be paying more in taxes than he makes from an appearance fee. He would be paying half the appearance fee and half of the money he made from endorsements on the day he appeared in the UK.

Right...I think. My original math left out a step. So He would be paying 50% on his 100k (50k) and 50% on one tenth of his sponsorship money 10m / 10 * .5 = 500k) for a total of 550k. So 5.5 times what he made on his appearance.

Also, bean multi-state taxes depend on the state. Most have reciprocity so taxes paid in one state can be counted against taxes in another state. Some do not or only reciprocate with certain states.

[bean]

Thanks, good to know! I wouldn't want to be a tax scofflaw!!

[dramaturge]

(08-16-2012 08:47 AM)C_Fresh Wrote:  

(08-16-2012 08:03 AM)dramaturge Wrote:  That's only for the days in which they are competing in the UK, not all the endorsements and such all year. They don't get their amount by dividing income by competition days, they get their amount by dividing competition days in the UK with competition days elsewhere. Thus, if they compete in the UK a tenth of their competition days, the athletes are taxed on a tenth of their endorsements, etc. That's the way the awkwardly phrased explanation seems to me. So Bolt wouldn't be paying more in taxes than he makes from an appearance fee. He would be paying half the appearance fee and half of the money he made from endorsements on the day he appeared in the UK.

Right...I think. My original math left out a step. So He would be paying 50% on his 100k (50k) and 50% on one tenth of his sponsorship money 10m / 10 * .5 = 500k) for a total of 550k. So 5.5 times what he made on his appearance.

Also, bean multi-state taxes depend on the state. Most have reciprocity so taxes paid in one state can be counted against taxes in another state. Some do not or only reciprocate with certain states.

It's more than his appearance fee, but he makes more than his appearance fee for appearing, thus the tax on his sponsorship monies. It's all well and good to look at the taxes versus appearance fees and say it doesn't pay him to appear, but that ignores the fact that he makes serious money via endorsements and sponsorships--money that he only makes because he continues to appear. I think it's important to the discussion to recognize that Bolt's (or any other athlete's) income on any given day exceeds his appearance fee by a significant amount because his appearance encourage major endorsement deals. UK taxing policy takes that into account whereas other places may not. That's a policy discussion that's interesting to have, but ignoring endorsement income when considering taxing policy isn't really including the whole picture. Bolt's appearing fee is only a small portion of his daily income.

Edit: fwiw, I'm not arguing for or against the policy, just pointing out that analyzing the policy solely with the appearance fee in mind doesn't really present a whole picture of the policy itself or what it's taxing.

[C_Fresh]

(08-16-2012 09:35 AM)dramaturge Wrote:  It's more than his appearance fee, but he makes more than his appearance fee for appearing, thus the tax on his sponsorship monies. It's all well and good to look at the taxes versus appearance fees and say it doesn't pay him to appear, but that ignores the fact that he makes serious money via endorsements and sponsorships--money that he only makes because he continues to appear. I think it's important to the discussion to recognize that Bolt's (or any other athlete's) income on any given day exceeds his appearance fee by a significant amount because his appearance encourage major endorsement deals. UK taxing policy takes that into account whereas other places may not. That's a policy discussion that's interesting to have, but ignoring endorsement income when considering taxing policy isn't really including the whole picture. Bolt's appearing fee is only a small portion of his daily income.

Edit: fwiw, I'm not arguing for or against the policy, just pointing out that analyzing the policy solely with the appearance fee in mind doesn't really present a whole picture of the policy itself or what it's taxing.

Endorsements and stuff like that are based on skill and persona more than anything, I think. The fact that he's fast and he races is far more important than where he races. If his training and conditioning allow for only 10 races a year (and I have no idea how that works) then that is what he does. I think taxing the appearance fee is reasonable (50% is crazy though) but I don't think that a host country should be entitled to a cut of an athlete's endorsement fees. They already had them before they came for the event. It is reasonable for the athelete's home country/state to collect taxes on these because they are income. It is not reasonable for another entity to lay claim to them since they had nothing to do with it. Britain is one of the few countries that thinks it is so entitled. Britain seems to be looking at moving to change the calculations to include training days. This makes slightly more sense to me, especially since training is as important as actually appearing. Appearing doesn't matter if you can't perform.

I suppose it is a chicken/egg argument. I'm maintaining that sponsorship is based on skill and is only tangentally related to venue. The major exception to this would be the Olympics and they already require a tax haven from the host country.

[That'sWhatItSays]

Professional sports in America will never expand into England (e.g. an NBA franchise in London) precisely because of these insane policies. Professional basketball is already hanging on by a hair in Toronto because of the disparity between how much you take home while playing there versus how much you take home in the states. For instance, Florida has no state income tax laws. Signing a multi-million dollar contract for a team based in Florida (Miami Heat, Orlando Magic) contrasted with a team based in Canada (Toronto, the defunct Vancouver Grizzlies) amounts to millions of dollars in difference between otherwise identical contracts. This has been proven many times. Guess how many free agents are clamoring to go to Toronto? Look at their roster. They have almost a majority of foreigners on their roster or young NBA talent that is required to play with the team that drafted them.

http://www.nba.com/raptors/roster/2012

As soon as somebody is good enough to earn attention from another team, that player is gone. (Vince Carter, Tracy McGrady, Chris Bosh). While there are certainly other factors involved with those moves, the financial incentive to leave Canada is certainly there.

The other interesting aspect of Bolt's decision was mentioned earlier: his drawing power. While the UK wants to tax him on the income he earned from his appearance there, he typically generates increased financial activity by his being there, thus a boon in tax revenues from other areas. This is the principle (right or wrong) which causes municipalities to pay huge sums of money for stadiums for the privately-owned local sports franchise. The idea is that having the team there causes the "rising waters" effect on all of the area's economy because of secondary economic activity that is generated by the interest in the events hosted in the town.

I think everyone can agree that taxation at such a rate that it becomes unfeasible to make an appearance is completely counter-productive.

[dramaturge]

I would agree that the sticking point is that the UK isn't his home country where the tax policy is concerned. Regardless of the percentage involved, I do think it's reasonable to question whether a hosting country can reasonably require taxes on endorsement income, etc.

Endorsements are based on skill and persona, yes, but if you never compete or appear anywhere, your skill and persona are pretty useless.

[dramaturge]

@ThatsWhatitSays--I'm pretty sure the residents of the UK are by and large perfectly content with US sports franchises no expanding to the UK. Just saying.

[myotch]

It's not a question of if Usain will compete. He will.

It's a matter of where he competes. England is just a place he won't compete.

It will not hurt Usain. It will hurt the event (or rather, the event will not benefit from his presence). Therefore, it will hurt the host country.

And since the event is a running race, I'd be willing to wager that Usain's pic would probably be on a LOT of advertising, too. And he wont pay a cent in taxes as long as he's not competing (I think I got that right).