State Tax Implications of NIL and Revenue Sharing for College Athletes

College athlete pay is no longer one simple “NIL” category for state tax purposes. States increasingly distinguish between two types of income: third-party NIL deals, which may be treated like royalty income, and school revenue-sharing payments, which are more likely to be treated as compensation for services. That distinction matters because royalty income may be sourced to the athlete’s residence or where the rights are used, while compensation is generally sourced to where the athlete performs services, often the school’s state.

This creates major tax consequences for athletes who attend school in a different state from where they live, especially when one state has no income tax and the other does. The issue has become more important since schools began directly paying athletes under the 2025 House settlement, which expanded revenue-sharing arrangements and raised new sourcing, withholding, and classification questions.

States are also responding in different ways. Arkansas exempts certain NIL and school-paid athlete compensation from state income tax, while Connecticut offers a tax credit program tied to payments benefiting UConn Athletics. More broadly, states are beginning to use tax policy as part of the competition for athletes.

In short, the key tax issue is that different forms of athlete pay may be taxed differently depending on how they are classified and where they are sourced.