Mississippi Bill Allows Student-Athletes to Earn NIL Money Tax-Free

The State of Mississippi recently passed House Bill 4014, which is a bill that would allow student-athletes to earn money on their Name, Image, and Likeness (NIL) exempt from state income tax. This is the latest action in what appears to be an arms race in SEC country as far as finding ways to improve their chances of landing recruits. The obvious beneficiaries of this tax exemption proposal are Mississippi State and Ole Miss. 

According to the bill itself, enactment would ensure that NIL payments would not count as taxable income under Mississippi state tax law. This exemption applies only to state income tax and, according to the IRS, athletes in this situation must still be wary of owing federal taxes as well as taxes in other states if their NIL opportunities occur outside of the state of Mississippi. 

This is not the first time we have seen states take action in this new era of college sports. Last year, Arkansas enacted a similar law exempting NIL income from the state’s income tax. 

Multiple states are taking action on the topic of NIL tax policy, and we have seen a couple of different approaches. Beyond the Arkansas and Mississippi model, Georgia, Louisiana, and South Carolina have proposed allowing student-athletes to deduct NIL earnings from taxable income, according to the National Conference of State Legislatures. Another approach can be seen in Illinois and New Jersey, where they are exploring similar deductions, but with a $100,000 per year cap. 

The obvious reason states are looking into policies like this is because it has become difficult to recruit players away from states that already do not have state income tax, a problem that we see in professional sports, particularly the NHL in recent years (many of us remember the “palm trees and taxes” comment made by former Sabres GM Kevyn Adams). Schools in Florida, Texas, Washington, and Nevada already have the recruiting advantage on this topic without having to enact specific NIL-related legislation. According to Front Office Sports, states without income taxes have been flexing their advantage for years already, and lawmakers in states enacting this type of legislation are doing what they can do to allow their universities to continue to compete for top recruits. 

As far as the legality of policies like this goes, there are certainly constitutional concerns about giving a specific group of individuals tax benefits. Although, according to the Associated Press, NIL tax exemptions are created through state legislation, and thus are generally legal under federal law. States typically have broad authority to create tax exemptions as part of their own state tax policy, according to the National Conference of State Legislatures. 

The impact of this trend is that NIL legislation is becoming part of the NIL landscape, since it is now impacting recruiting for top institutions. The more states adopt these policies, the more tax advantages could influence where athletes choose to play college sports, much like we see in professional sports.