BILL ANALYSIS Ó
Senate Appropriations Committee Fiscal Summary
Senator Christine Kehoe, Chair
AB 1786 (Mansoor) - Personal income tax: exclusion from income:
Olympics.
Amended: August 13, 2012 Policy Vote: G&F N/A
Urgency: No Mandate: No
Hearing Date: August 16, 2012
Consultant: Mark McKenzie
This bill meets the criteria for referral to the Suspense File.
Bill Summary: AB 1786 would exclude the value of any prize or
award won in the Olympics from income for purposes of taxation.
Fiscal Impact: Assuming the bill would apply to U.S. Olympic
Committee (USOC) prizes and awards, other prizes and awards, and
certain endorsement income, the Franchise Tax Board (FTB)
estimates that the bill would result in revenue losses of $9.6
million in 2012-13, $6.3 million in 2013-14, and $6.4 million in
2014-15 (General Fund).
If the bill is limited to USOC prizes and awards, revenue losses
could be approximately $110,000 in 2012-13 (General Fund).
Future revenue losses of a similar amount could be incurred
every two years, depending on the number and type of medals won
by California athletes in future winter and summer Olympiads.
Background: Existing federal and state tax law defines "income"
for purposes of taxation as all income from any source, such as
wages, dividends, interest, capital gains, rents, and royalties.
Some income is specifically excluded from this definition, such
as insurance payments and certain disaster relief payments.
California law generally conforms to federal law for exclusions
from gross income for ease of administration. In some cases,
however, California law expressly excludes from income some
items that are taxable under federal law, such as lottery
winnings, unemployment insurance payments, and a portion of
social security benefits.
There are no current exclusions from income in federal or state
law for prizes and awards won in Olympic competition. Several
bills have recently been introduced in Congress that would
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provide such an income exclusion for federal taxation purposes,
but some are limited solely to prizes and awards from the USOC,
while others take a more general approach that may allow an
exclusion for any type of compensation provided to a
medal-winning athlete.
Proposed Law: AB 1786 would provide that gross income for
purposes of state income tax purposes does not include the value
of any prize or award won by the taxpayer in athletic
competition in the Olympic Games on or after January 1, 2012.
Staff Comments: In addition to the physical medal earned by
Olympic athletes finishing first, second, or third in their
respective event, the USOC provides an honorarium in the amount
of $25,000 for gold medalists, $15,000 for silver medalists, and
$10,000 for bronze medalists. This bill is intended to exclude
any such award from income for taxation purposes, providing
modest tax relief for successful athletes, many of whom have
made enormous sacrifices in pursuit of Olympic success.
It is unclear how many Olympic medal winners would benefit from
this bill. For example, 146 of U.S. Olympians who competed in
the London 2012 Games currently reside in California, and it has
been reported that a total of 93 medals were won by U.S.
athletes who reside in California or list their hometown in this
state, including 52 gold medals, 28 silver medals, and 13 bronze
medals. It is unclear, however, that all of the individual
medal winners are California taxpayers. In addition, there
could be athletes who compete for another country and receive
prizes and awards, but live and pay taxes in California. The
Olympic championship basketball game pitted several Los
Angeles-area players against each other: Kobe Bryant and Chris
Paul won gold for the United States, while Pau Gasol won a
silver medal for Spain.
Assuming an average marginal tax rate of six percent, a gold
medal winner would pay approximately $1,500 in state tax income
taxes on the USOC honorarium, while a silver medalist would pay
$900 and a bronze medalist would pay $600. Actual tax owed on
these prizes would depend on numerous factors that may apply to
each taxpayer, such as what tax bracket he or she is subject to.
For example, a multi-millionaire professional basketball player
would pay a higher tax on a gold medal prize than an amateur
athlete that may have very little taxable income. If one looks
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solely at the cash prizes paid to U.S. athletes that are
California taxpayers by the USOC, and applying an average
marginal tax rate of six percent, the estimated tax revenue loss
associated with this bill would be approximately $110,000 in
2012-13. Future losses would occur every two years in relation
to prizes and awards paid to successful athletes who participate
in both winter and summer Olympic Games.
Athletes whose Olympic success helps them become famous are
well-positioned for lucrative sponsorship deals whose values
will most likely far exceed that of the medal prizes. Double
gold medalist in gymnastics Gabrielle Douglas, for example, is
already expected to appear on Kellogg's Corn Flakes cereal boxes
in the near future, and will likely get many other endorsement
deals in the coming years. AB 1786, as drafted in the August 13
version, is not limited in applicability to cash payments
received by the USOC. As such, the measure could be perceived
as applying to other payments received by an athlete in
connection to their Olympic success. If broadly applied, the
FTB estimates tax revenue losses of $9.6 million in 2012-13,
$6.3 million in 2013-14, and $6.4 million in 2014-15.
Staff notes that income derived from other successful endeavors
are generally taxable under both federal and state law. For
example, cash prizes paid to Nobel or Pulitzer Prize winners are
taxable under current law, as are performance-based bonuses paid
by employers. The Committee may wish to consider whether the
cash prizes won through a particular global athletic competition
should be excluded from income, when other awards are taxable.