OXFORD, MISSISSIPPI – DECEMBER 20: Trinidad Chambliss #6 of the Ole Miss Rebels rushes into the end zone for a touchdown during the first quarter of the 2025 College Football Playoff First Round Game against the Tulane Green Wave at Vaught-Hemingway Stadium on December 20, 2025 in Oxford, Mississippi. (Photo by Wes Hale/Getty Images)
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As college sports recruiting picks up, taxes have become an impactful determinant for where players might go to play. The state of Mississippi has become the latest state to underscore this notion as its legislature has passed a bill that will allow athletes earning NIL in the state of Mississippi to exclude these NIL earnings from income when filing their tax returns.
The Taxation Of NIL Earnings
Starting in July 2021, college athletes can be compensated for their name, image, and likeness – often referred to as their NIL – while maintaining their eligibility to play college sports. This rule change has led to a collegiate arms race where NIL collectives associated with each school are continuously raising new funds in an effort to lure the top recruits to play for their school.
The money that the athletes receive for NIL is subject to tax as though it were any other source of income. The burden can be substantial, as top-paid college football and college basketball players routinely pay millions of dollars in tax liabilities at the federal and state levels. As this income is based on NIL, rather than pay on the player’s specific performance in games, it tends to be subject to tax where earned due to income sourcing and residency rules. Thus, an athlete playing for the University of Southern California will likely have to pay California income taxes on the majority (or all) of the NIL received. Meanwhile, an athlete playing for the University of Texas will mostly be subject to Texas tax requirements, which is a 0% state income tax rate.
While all athletes are subject to the federal income tax requirements, there has been substantial variation in what a player owes for state income taxes based on the school that they play for. For instance, Arch Manning has the highest On3 NIL Valuation of $5.4 million. Because he resides in Texas and the majority of his NIL is earned from the Texas Longhorns, this money tends not be taxed at the state level, providing substantial tax savings, according to Forbes. However, Manning could be subject to income taxes in other states if some of his income is earned in those states. For example, if Manning shoots a commercial in California, he would have to pay California state income taxes for the amount of his earnings accrued in that state.
The NIL State Income Tax Race To The Bottom
As nine states do not impose a state income tax on individuals, a clear tax advantage began to develop for schools in these states. For instance, if a recruit was deciding between playing for the University of Arkansas (top income tax rate of 3.9%) or the University of Tennessee (no state income tax), and each school offered the recruit $1 million in NIL, the recruit would make $39,000 less in after-tax earnings playing for Arkansas than Tennessee.
Realizing this is a concern, the state of Arkansas became the first state that otherwise imposes a tax on income to exempt NIL earnings from taxation. As discussed by Forbes, there is a real question as to whether other states would follow and begin a race to the bottom – a scenario where many states follow suit and exempt this income, resulting in no net benefit outside of a lower amount of income taxes collected.
According to On3, the state of Mississippi has become the next state to follow suit. Like Arkansas, Mississippi’s legislature has agreed to allow athletes’ NIL earnings to be exempted from state income tax. Mississippi currently imposes a flat income tax rate of 4.4%, meaning that an athlete like star Quarterback Trinidad Chambliss with an estimated NIL valuation of $4 million will save approximately $176,000 while playing at the University of Mississippi, assuming all NIL income is Mississippi-sourced, and he has no other deductions or apportionment.
The Pros And Cons Of Excluding NIL From Taxation
There are clear reasons for and against states excluding NIL from taxation. In terms of the arguments for these actions, the amount of taxation being collected is fairly minimal. For instance, if the total NIL money collected and spent on athletes across all Mississippi schools and sports is $100 million, then the state of Mississippi would be sacrificing $4.4 million in tax revenues.
In comparison, the University of Mississippi hosted a college football playoff game this year, which brought in an estimated $74 million to the local economy, according to Yahoo!Sports. Thus, the economic costs of forgoing tax revenues can be easily made up with the success of the collegiate sports teams if these teams can use the economic benefits to bring in higher caliber players.
Implicit in this decision is the drive for success that the college teams are facing. If teams can bring in more talent to have that greater success, then the economic benefits appear to make up for the costs. This notion is underscored by this year’s college football national championship game, which featured the Miami Hurricanes and Indiana Hoosiers. Both schools are in low-income tax rate jurisdictions, and both have used this to bring in high-quality talent.
On the flip side, many may question the efficacy of exempting athletes from income tax. As highlighted by Peter Burns of ESPN on X, “Wild Times. A Teacher? Taxed Income. A police officer? Taxed Income. Health Care Worker? Taxed Income. 3rd string cornerback? Tax free $$$.” Put differently, if a state wants the best of anything, whether it be teachers, doctors, front-line emergency service personnel, or athletes, it can choose to tax-exempt those people. So, the question arises as to why the state chooses to exempt the taxes of the athlete over the teacher.
Potentially more distressing is whether and to what extent other states follow Arkansas and Mississippi. Now, athletes can play for a school in one of 11 states and not have to pay state income taxes on their NIL earnings. However, each time a state follows, the relative benefits for the schools in these states shrink. At the same time, the state has forgone income tax collections, which could otherwise be used to benefit the state in other ways, such as investments in schools, services, and transportation. Thus, a question arises as to whether states will end up benefiting in the end from joining this race to the bottom.
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