Alabama joins the list of states exempting NIL compensation received by college athletes from the state income tax: Report

The NIL era in college sports has come with some unprecedented changes over the years as the concept has revolutionized player compensation and the relationship between student-athletes and the institutions that they represent.

In the latest update from the NIL space, Alabama state representative Joe Lovvorn sponsored legislation that would make earnings by student-athletes exempt from the state's income tax which ranges from 2%-5%, per On3.

In early February, a similar bill was introduced by Georgia Senators Frank Ginn, Carden Summers, Brandon Beach, Ben Watson and Greg Dolezal exempting players from the state's income tax rate of 5.39% and giving the Georgia Bulldogs a distinct recruitment advantage.

The move by the state of Alabama brings the Alabama Crimson Tide and Auburn Tigers to par with other Southeastern conference opponents, the Tennessee Volunteers, Florida Gators and Texas Longhorns as programs that benefit from being tax-exempt from their state's income tax rates.

Should the Alabama legislation be enacted, it would start being applied on October 1, 2025, but would be applied retroactively to January 1, 2025, and would stretch into 2027.

An unprecedented NIL era continues to throw up surprises

The latest move by states to exempt student-athletes from paying income tax from their NIL endorsements continues a glut of patchwork laws governing the practice that has grown unchecked in the past four years.

On Tuesday, the U.S. Department of Education’s Office for Civil Rights overturned guidelines enacted under former President Joe Biden which stipulated how revenue would be distributed proportionally among different sports under the House vs. NCAA settlement.

After the announcement was made, Acting Assistant Secretary for Civil Rights Craig Trainor released a statement explaining the action.

“The NIL guidance, rammed through by the Biden Administration in its final days, is overly burdensome, profoundly unfair, and it goes well beyond what agency guidance is intended to achieve,” Trainor said in a statement.

“Without a credible legal justification, the Biden Administration claimed that NIL agreements between schools and student-athletes are akin to financial aid and must, therefore, be proportionately distributed between male and female athletes under Title IX.

“Enacted over 50 years ago, Title IX says nothing about how revenue-generating athletics programs should allocate compensation among student-athletes. The claim that Title IX forces schools and colleges to distribute student-athlete revenues proportionately based on gender equity considerations is sweeping and would require clear legal authority to support it. That does not exist.”

The overturning of the guidelines means that programs can now direct most of their revenue toward the more lucrative college football and basketball. In the 2025-2026 season, the revenue shared will be capped at $20.5 million if finally approved in April.