By Katherine Simone
Background
As a basic rule, if you work in more than one state, you have the right to be taxed on that income in more than one state. However, there are numerous professionals whose careers require them to carry out business in another state but only a few times per year. Most states will allow these business visitors to be exempt from its income tax if they work less than a specific number of days per year since it would be arguably impossible to track every single out-of-state visitor. This is true unless, of course, you’re a professional athlete. Enter the jock tax. The “jock tax” is a nickname given to the income tax imposed on professional athletes[11] who travel to opponents in other states and are subsequently taxed on the income they earn in those states. Athletes are excluded from what is known as the “occasional entrant exemption” because they are easy targets. They have high salaries, travelling to other states is inherent in order to perform their jobs, and their schedules are published in countless forms of media. States and municipalities know exactly when professional athletes will be in their jurisdiction and on what days they will be earning out-of-state income.
How did this tax come about? Leading the way in 1991, California imposed a tax on the Chicago Bulls players who traveled to Los Angeles to play in the NBA finals. In return, Illinois created it’s own tax on out-of-state players who played games in Illinois but only if the home state of those teams imposed a tax on Illinois-based players. This Illinois tax became known, fittingly, as “Michael Jordan’s Revenge” tax. From there, other states followed suit and today, with the exception of Florida, Texas, Washington state, and Washington D.C.[12], all states with an income tax and a professional sports team levy a jock tax.
Games-Played versus Duty-Days
There are two methods of taxation when it comes to imposing the jock tax. The first is the “games-played” method. This divides the games played in a certain municipality or state by the total games played in one year to determine the taxable income. The “games-played” method operates under the premise that athletes are only paid to play in games; all other activities (practices, camps, meetings) are mere by-products of the profession because without the existence of games, there would be no other team activities. While there is an argument for using the games-played method, Cleveland, Ohio is the only municipality that has the opportunity to use it since it is the only major-league city in the United States that calculates the jock tax by only considering games played. Under this method, if an NFL team has one game in Cleveland out of the 20 games played for the entire season, then the city would use 5 percent of the athlete’s annual income in calculating those players’ taxes.
The second is the “duty-days” method, which divides the days played in a certain municipality by all days of work in one year (meaning all days the professional is “on duty”, including attending team meetings, practices, training camps, etc.) to determine the taxable income. Under the duty-days method, if a season had 200 duty days and a player was only in a state for two of those days, then 1 percent of his/her annual salary would be subject to tax in that state.
If athletes had it their way, there would be no jock tax and their income would only be taxed in the state in which they reside. But then the citizens that reside in cities and states that have professional teams and impose the tax would have a harder time paying for nice things like brand new stadiums since they would not bring in “their fair share” of the athletes’ taxable income. So the real question is, of the two methods of taxation, is one the “correct” method?
The duty-days method is more athlete-friendly. This method presumes that athletes are “working” by attending any official team activities, which can take place before, during and after the season and account for far more days than the number of days than game days. The upside to this method is that the larger number of days considered causes the taxed percentage of income to decrease. The downside to this is that players are taxed for all days spent in another city/state performing official activities for their team, even if there is not a game played on those days. So the longer an athlete stays, the more of his or her income will be taxed. For example, this year’s Super Bowl teams, the Seattle Seahawks and the New England Patriots, travelled to Arizona several days prior to the Sunday game. As a result, each of those teams’ players had all of those days tacked on to their total duty days and all days were considered tax-eligible.
Cleveland Against the World
Well, maybe just “Cleveland Against the Rest of the Nation and All Other Cities in the State of Ohio”. The jock tax exists in Ohio under the Ohio Revised Code section 718.011, known as the “occasional entrant exemption” which addresses income that is subject to taxation:
“…a municipal corporation shall not tax the compensation paid to a nonresident individual for personal services performed by the individual in the municipal corporation on twelve or fewer days in a calendar year unless… The individual is a professional entertainer or professional athlete…”[13]
As mentioned above, professional athletes are not included in this exemption.
Cleveland determines out-of-state players’ taxable income by taking the number of games their respective teams played in Cleveland divided by the total number of preseason, regular season, and playoff games in which the players were available to play. Cleveland’s imposition of this tax method brings in more revenue but costs professional athletes more money than the duty days method. This has, not surprisingly, lead to several lawsuits by former athletes who claim they were improperly and excessively taxed.
Hunter Hillenmeyer played for the Chicago Bears from 2003 to 2010. During the years of 2004, 2005, and 2006, he travelled with the Bears to Cleveland to play the Browns[14]. In each of those years, Hillenmeyer was in Cleveland for two days and was subsequently taxed only for the actual game day out of the 20 games in which he was available to play for the year[15]. Hillenmeyer argues that he worked at least 150 days during each of the three years. He sought a tax refund of $5,062.00 on the grounds that taxation under the games-played method is unconstitutional[16]. The Cleveland Tax Administrator denied his request. He subsequently appealed to the City of Cleveland Municipal Board of Review and to the Ohio Board of Tax Appeals, in that order, and both rejected his request. The case is currently in front of the Ohio Supreme Court.
Jeff Saturday played for the Indianapolis Colts from 1999 to 2011. During the 2008 season, the Colts travelled to Cleveland for one regular-season game. However, Saturday stayed behind in Indianapolis due to an injury. Nonetheless, Cleveland taxed Saturday for the game. Saturday argues that he should not be taxed when he never stepped foot in the city that year. Cleveland counters that sick and injured players are not exempt from the tax because a physical presence in the city is not a prerequisite to impose the tax; Saturday was still paid for the Cleveland game and he should be taxed accordingly. Saturday seeks a tax refund of $3,294.00 on the grounds that taxation under the games-played method is unconstitutional. His request has had the same progression as Hillenmeyer’s and currently sits before the Ohio Supreme Court.
Judging by the low refund numbers, neither of these suits is really about the money. More at issue is the claim by both former players that Cleveland unconstitutionally imposed the municipal tax upon them by using the games-played method. They both claim that the tax violates the equal protection clause of the United States Constitution and the Ohio Constitution by singling out a protected class of people and imposing a separate tax upon them.
The city has several arguments in response to the unconstitutionality claim. First, the city claims that just because an athlete doesn’t approve of the taxation system, or because he or she could be taxed less with an alternate system, does not render the current system unconstitutional. Second, according to Ohio Attorney General Mike DeWine, jock taxes are justified because they allow cities to single out “easy-to-identify, high-end source(s) of revenue” without forcing every visiting worker to file paperwork. It’s simply an easy way for the city to raise money. He further retorts that there is “nothing in the U.S. or Ohio Constitution [that] bars the state from treating high-paid athletes differently from others.”
Outside of the constitutionality issue, the Attorney General’s brief also argues that local taxpayers are burdened by the arrival of these out-of-town professional athletes because of their need for heightened security, traffic control, and crowd control.[17]
However, it is important to note the fact that money plays a large role in all of this. Cleveland is projected to lose at least $1 million in tax revenue annually if they are forced to use the duty-days method.[18]
Other issues come into question when considering the breadth of the jock tax in general. Aside from the athletes, team personnel are subject to the jock tax but have a much harder time absorbing the financial impact. This includes trainers, scouts and the several tiers of coaches. Further, it goes without saying that these people are not paid to “play in games”. They get paid to act as a support system for the athletes. They are subject to the same tax as the players who make the high salaries when they are, on average, earning the national median income. Additionally, the high salaries of professional athletes can be misleading in many cases because their careers typically don’t last longer than a few years, unlike those of business executives, doctors, and lawyers who are all exempt from the tax. So while we hear about salaries that cause our jaws to hit the floor, they are highly concentrated. Even the healthiest athletes won’t have a career that reaches half the length of other highly compensated professionals.
Consider sports outside of the major four. For instance, Major League Soccer does not bring in nearly the amount of revenue that the four major sports do. Those players salaries can get down to the $30,000-40,000 range and they still have to file income taxes in at least a dozen states every year.
What about the issue of double taxation? For example, Browns players who live in Cleveland will be taxed on their entire salary by the city of Cleveland. Then, out-of-state municipalities will tax them for the specific games played in each respective jurisdiction, which all constitute a portion of the players’ entire salary.
In the end, the outcomes of the Hillenmeyer and Saturday cases will certainly have an impact on professional athletes. Should the Ohio Supreme Court rule in favor of the City of Cleveland on the grounds that the games-played method of taxation is constitutional, that could open the doors for other municipalities to follow suit in order to increase their annual revenue. Should the Ohio Supreme Court rule in favor of Hillenmeyer and Saturday, Cleveland will be forced to use the duty-days method resulting in less taxation on visiting players. Either way, we will likely see increased scrutiny of both methods by current and former athletes in the future. We may even see more challenges to the constitutionality of any method of the jock tax.
Katherine earned her J.D. from Northern Kentucky University. She currently works in labor and employment relations with a focus on collective bargaining agreements. She may be reached at katasimone@gmail.com
[11] Professional entertainers are also included in this but it’s still commonly known as the jock tax.
[12] The three states do not impose any personal income tax and Congress prohibits D.C. from imposing the tax.
[13] The recent passing of House Bill 5 will increase this number to 20 days beginning in 2016.
[14] In 2004 and 2006, the Bears played in the Browns in an exhibition game. In 2005, they played as part of the regular season.
[15] Hillenmeyer was available for 21 games during the 2005 season.
[16] The Major League Baseball Players Association, the National Football League Players Association, the National Basketball Players Association, and the National Hockey League Players Association all filed amici curiae on behalf of Hillenmeyer.
[17] One must admit that this argument is a bit shaky seeing as the city makes an extraordinary amount of money off of ticket sales, hotel stays, meals, and other expenses to in and out-of-state fans before, during and after the actual game.
[18] Approximately $120,000 from MLB teams, $175,000 from NBA teams, and $705,000 from NFL teams.
