The NBA draft season gives a shot to promising basketball players in colleges across the country, with each of the 30 NBA teams picking eligible players in the first and second rounds. In the first round, teams that failed to reach the playoffs in the previous season get the first 14 picks through the NBA draft lottery, while the other 16 teams get picks depending on their standings in the previous season in reverse order.
The second round is straightforward. Teams consider their position from the previous regular-season standings and pick players in reverse order. Every year, an additional 60 eligible players is the NBA attempt to attract highly-skilled talent for future success.
While the move to add players is good for the teams, the tax environment around these teams could affect the player’s salaries. Some states like California impose heavy income taxes of over 13%, while others like Florida have zero taxes on the income. With the CBA salary cap rising drastically, there’s a significant gap in the amount that trickles down to the player depending on the state they call home.
The first five picks for this year’s draft went to, in descending order: the Orlando Magic, the Oklahoma City Thunder, the Houston Rockets, the Sacramento Kings, and the Detroit Pistons. Let’s look at the variation in the salary gap for these NBA draft winners in their respective states.
Orlando, Florida
The first pick goes to the Orlando Magic. Teams based in Florida State enjoy no income taxes on their earnings, except for salaries above $200,000, which faces a 22% cut as income tax in Orlando. Other than the income tax, players incur more taxes on their paycheck.
Property taxes in Florida average at 0.83%, but those in Orlando pay a higher rate of 1.16%. Similarly, sales tax in the state is at 6% but goes slightly higher in Orlando, up to 6.5%. For the Orland team, the projected contract for the next four years is estimated at $49,487,108, with the 2022 market cap rising to $10,907,040
Oklahoma City, Oklahoma
The State of Oklahoma’s very own Oklahoma City Thunder have the second pick, and Oklahoma imposes an income tax on salaried NBA players, ranging from 0% to 5%, and Oklahoma City follows a similar tax range for its residents. The sales tax average is at 4.5% at the state level but lowers at the Oklahoma City level to 4.13%.
While Oklahoma City is the capital of the State of Oklahoma, property taxes in the city remain the same as with the state government, and residents pay a property tax of 0.87%. The Oklahoma City team expects to sign a contract for the projected salaries for the draft team, which amounts to an estimated $24,288,551 as the market cap rises to $9,759,000.
Houston, Texas
The third pick goes to the Houston Rockets, and the taxes in Houston vary significantly with the rates imposed by the state government. For example, the income tax at the state level is 0%, but in Houston, you may have to pay a certain amount in taxes, depending on your salary amount.
For salaries over $0 and below $10,275, the taxable income is taxed at 10%. Those earning salaries above $10,275 and below $41,775, pay a tax of $1,027.50 plus 12% of the amount over $10,275. Those earning above $41,775 and below $89,075, pay a tax amount of $4,807.50 plus 22% of the amount over $41,775.
Similarly, those earning above $89,075 and below $170,050, are expected to pay a tax amount of $15,213.50 plus 24% of the amount over $89,075, and those earning above $170,050 and below $215,950, pay a tax amount of $34,647.50 plus 32% of the amount over $170,050.
For those whose salaries go above $215,590 and below $539,900, the tax amount goes up to $49,335.50 plus 35% of the amount over $215,950, and for those earning above the $539,900 mark, their tax goes up to $162,718.00 plus 37% of the amount over $539,900.
Other than the high-income tax in Houston compared to the state, players have to incur other higher taxes such as property tax at 1.82% compared to the state’s rate of 1.69% and sales tax at 8.25% compared to the state’s rate of 6.25%.
The Houston team expects to sign a contract that awards the draft team an estimated amount of $39,790,853 as the market cap rises to $8,763,720.
Sacramento, California
California’s Sacramento Kings secured the fourth pick, and the California state income taxes range from 1% to 12.3%, while that of Sacramento City settles at 9.3%. Similarly, sales tax varies from the state’s rate, which ranges from 7.25% to 10.75%, and that of Sacramento averages at 8.2%.
Property tax in California is at 0.73% but goes slightly higher in Sacramento, up to 0.81%. Sacramento team’s projected contract will award round one draft picks up to $35,884,042, with the 2022 salary cap rising to $7,901,280.
Detroit, Michigan
Pick number five goes to the Detroit Pistons. Their home state of Michigan’s income tax is at 4.25% but goes a bit lower in the city of Detroit, up to 2.45%. However, the sales taxes in the Michigan State-level average at 6% but go as high as 7.75% at the city level. Similarly, the Michigan property tax is at 1.45% on average but goes up to 2.83% in Detroit.
The Detroit team is set to sign a projected contract for round one draft picks that will award them $32,510,520 and an increased salary cap of $7,155,240.
How Do the Taxes Affect the Draft Pick Salaries?
Players drafted into teams located in states that heavy charge taxes may end up losing a significant amount of their salary to the government. For example, someone playing for Oklahoma City may pay less for housing by almost 60% compared to someone playing for Detroit.
Also, if someone is playing for Orlando, where the state charges no income taxes, they may keep a larger portion of their salary than a player in the Sacramento team.
Ron L. Brown is Co-Founder of Athlete Essentials, a wealth management firm dedicated to helping professional athletes make the most of their career earnings. Athlete Essentials takes pride in their work with athletes to develop a strategy for sound investment decisions, cash flow management and business planning. Learn more at athessentials.com.
