Individual Income Tax Insights: The Buzzer Sounds on Tennessee’s Jock Tax

While many basketball fans are talking about the NBA Finals rematch between the Golden State Warriors and Cleveland Cavaliers, NBA players everywhere have scored a victory when playing the Memphis Grizzles in Tennessee next season. On June 1, the so-called “jock tax” expired in Tennessee for NBA players, according to Andrew M. Ballard in Bloomberg BNA’s Weekly State Tax Report. Tennessee only taxes dividend and interest income, and not income taxes. However, professional athletes in the NBA were taxed in Tennessee through a professional privilege tax of $2,500 per game, though players could only be taxed for a maximum of three games per year, or $7,500.

The professional privilege tax in Tennessee went into effect in 2009, but only applied to NHL and NBA players. NFL players never had a tax imposed on them and Tennessee does not have a Major League Baseball team. However, the tax on NHL players was waived in 2014, leaving NBA players the only professional athletes to pay the tax.

In most states, there are two major methods of calculating the jock tax for nonresident athletes. The first is a “games played” method and the second is a “duty days” method. An NBA team plays 82 games a year, not including the playoffs, meaning under a “games played” method, a player is taxed on 1/82nd of their salary for each game played in a state, which may be imposed even if the player sits on the bench the whole game. However, under a “duty days” method, practices and travel days are also included, many of which occur in the player’s home state, meaning that each game played in a state represents a much smaller portion of a player’s overall salary.

And there’s more good news for the Warriors’ Steph Curry, besides being the NBA MVP. When he’s playing the NBA Finals in Cleveland this year, he may have to pay less tax. Last year, the Ohio Supreme Court found that the games played method of calculating the jock tax by the city of Cleveland was a due process violation, according to Bebe Raupe in the Weekly State Tax Report. The court held that the duty days method was more fair in calculating the tax.

However, the duty days method is not without its flaws. Earlier this year, when the Super Bowl was played in California, many of the players on the Carolina Panthers and Denver Broncos spent a week or more training and practicing in California prior to the game. Because of California’s high income tax rate and the large number of duty days in California, many athletes actually lost money by playing in the Super Bowl, according to David McAfee in the Daily Tax Report. In fact, Forbes calculated that Panthers quarterback Cam Newton was effectively taxed at a rate of 172.2% for losing the Super Bowl. Talk about adding insult to injury.

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