Jock Tax Battle: States and Locales v Athletes

Your Guide to State, Local, Federal, Estate + International Taxation

So football has started and your fantasy team, if like mine, isn’t winning like you thought! Anyways, as we sit on the couch and watch these NFL players get injured, score us points or not score us points, I’m sure you’ve all thought to yourself, “Wouldn’t it be nice to be a sports star? Making money, traveling, doing what you love (until you get an ACL tear or blow out your shoulder in the first two weeks, …’cough’ Jimmy Garoppolo ‘cough’).” The answer to the question is, “Yes, it would be awesome, but it’s not all fun and games!” It’s fun, games, injuries, AND a tax battle for what is called the Jock Tax.

How would you tax professional athletes? Don’t really have an answer? Well, it seems like you’re on the same page as some of the states then too. Some states and locales are ‘rushing’ to create new tax laws, while some may have succeeded, but others have been blocked, partially by real life NFL linebackers, I’m guessing.

Let’s take a look at some failed attempts by the ‘States & Locales’ or victories for ‘The Jocks’.

  1. In Tennessee we’ve seen a tax on resident and nonresident NBA players since 2009; however, TN dropped the ball by not levying that tax on NHL players since 2014 and NEVER imposed it on the NFL players. The tax has now expired, requiring refunds for portions of taxes already paid by basketball players. Close game, but I think this one goes to the Jocks (1-0 Jocks).
  2. Cleveland lost a lawsuit when the Ohio Supreme Court voided the city’s system of levying a 2% tax on visiting NFL players’ salaries. The tax was based upon the number of games played in a season, which skews the allocation of actual work days. These guys and gals don’t just “Wake up like this”. Training and preseason was completely disregarded and, therefore, created a bigger income tax to visiting athletes. Nice attempt Cleveland. Jocks 2-0. Fun Fact: Other jurisdictions use per-game methods, just not for football, because of the shorter game schedule.
  3. Arizona goes off of ‘duty days’, of which only start at the team’s first regular season game. They start then because it would be greedy if AZ counted all the duty days prior to the season, considering our beautiful spring weather draws about EVERYONE! Go AZ! Jocks 2-1

As we move from the past to the future, there is an upcoming game with New Jersey. Governor Chris Christie announced in July that the state may withdraw from a tax reciprocity agreement with neighboring state, Pennsylvania. NJ doesn’t currently collect taxes from people living in PA and working in NJ. This could put an additional income tax of up to 8.97% for those related sport stars.

May be you aren’t a jock, but you travel a lot for work and feel you don’t have a tax home. Well, let me correct you, EVERYONE has a tax home. There is no escape; it just might take some research to figure out where that tax home is located. With that said, state and local tax returns are just as important as Federal ones and can come back to haunt you if not done correctly, so make sure to contact your tax advisor with any questions or concerns you may have.

By Chris Morrison, CPA