Deflategate and the NFL’s suspension of quarterback Tom Brady for 4 games has been the NFL’s biggest news story of the past two years. On Monday, the United States Court of Appeals for the Second Circuit ruled in favor of the NFL, overturning a lower judge decision to vacate Patriots quarterback Tom Brady’s four-game Deflategate suspension. Under the Second Circuit ruling, Brady will miss the first 4 games of the 2016 season.

Obviously, the biggest focus for Patriots fans is the impact that Brady’s suspension could have on the team’s fortunes this season. However, for Brady and his tax advisors, the suspension could also have interesting tax implications.

While Brady has so far made every attempt to have the suspension overturned, he has, at the same time, prepared well for the financial impact of the suspension. During this past offseason, Brady restructured his contract with the Patriots and converted a $9 million base salary for 2016 into a signing bonus and a $1 million base salary. Suspensions only result in the loss of base salary, so Brady will only forfeit $235  thousand if suspended for 4 games this year rather than the $2.11 million he’d miss out on if the deal had not been altered.

While restructuring the deal may have saved Brady money, the Commonwealth may have lost income tax revenue based on the new contract terms. If Brady files as a non-resident of Massachusetts, he may not be subject to the “Jock Tax” in Massachusetts on his signing bonus.

As a consequence, if Brady files as a Massachusetts non-resident, the Commonwealth may have lost the ability to tax the $8 million that was shifted from base salary to signing bonus. Assuming that Brady would have spent approximately 85% of duty days during the 2016 season in Massachusetts, this shift will have reduced Brady’s Massachusetts income tax bill by approximately $340,000 .

Now, given Brady’s Brookline estate, one might assume that Brady files as a Massachusetts’ resident.  But for high-wealth individuals like Brady that have homes in multiple states, simply owning a home in a state does not necessarily mean they are a “resident” for tax purposes.   If Brady is not a resident of Massachusetts, he would still pay Massachusetts income tax on a portion of his base salary under Massachusetts’ Jock Tax on non-resident athletes.

Under the Massachusetts Jock Tax, an athlete’s compensation for services rendered as a member of an athletic team during the taxable year is included in the athlete’s income and then apportioned to Massachusetts using the ratio of duty days spent within Massachusetts rendering services for the team during the taxable year by the total number of duty days spent both within and without Massachusetts during the taxable year.  830 CMR 62.5A.2(2).  Remuneration paid for signing a contract is not subject to Massachusetts’ taxation of income received by non-resident professional team athletes if all of the following conditions are met: (a) the payment for the signing bonus is not conditional upon the signee playing any games for the team; (b) the signing bonus is payable separately from the salary and any other compensation; and (c) the signing bonus is nonrefundable.  830 CMR 62.5A.3.

Typically, a duty day is defined as any day in which an athlete does some form of work for their team such as a game, team practice, or media appearance. However, a day for which an athlete is not compensated and is not rendering services for the team in any manner, including a day spent suspended without pay, is not treated as a duty day.  See 830 CMR 62.5A.2(3).