Daily Tax Report: State provides authoritative coverage of state and local tax developments across the 50 U.S. states and the District of Columbia, tracking legislative and regulatory updates,...
By Ryan Prete
National Football League players are staring down another season of costly and complicated jock taxes.
By the time the New England Patriots and Kansas City Chiefs kick off the 2017-18 NFL season Sept. 7, players will have already accounted for numerous “duty days” in various states, translating to thousands owed in income tax—or jock taxes—and most to states where they don’t reside. Cities also have started imposing similar tax regimes on visiting players, with Detroit enacting an ordinance in March that is the first to count travel days that don’t otherwise include service inside the city.
Pro football players may be the most famous taxpayers affected by these rules, but other employees of the team also are impacted—and must file the same voluminous tax bills.
“Jock taxes are the tip of the iceberg in state’s efforts to capture income earned in-state by nonresident taxpayers. Athletes happen to make easy targets for revenue departments, and sometimes face unique rules, but all business travelers are potentially subject to out-of-state income taxes,” Jared Walczak, senior policy analyst at the Tax Foundation, told Bloomberg BNA. “Since these filers can take a credit against taxes paid to other states when they file their home state tax return, the compliance costs are often far more significant than any increase in overall levels of taxation.”
Sean Packard, tax director at the McLean, Va.-based sports agency Octagon Financial Services, told Bloomberg BNA that for the most part, the jock tax is untouchable and unavoidable.
“Players salaries and schedules are made public, so its extremely easy to track their travels during the season,” Packard said.
Professional athletes might hope for help from Congress. Earlier this year, the U.S. House of Representatives approved The Mobile Workforce State Income Tax Simplification Act of 2017 ( S.540/ H.R.1393), which would prevent states from imposing an income tax on individuals who worked less than 30 days within their borders.
However, the proposal explicitly excludes professional athletes from the potential 30-day income tax buffer.
Every professional athlete is subject to jock tax, calculated by the amount of days a player contributes to “income related work” in a state that administers an income tax. Twenty-one of the 22 states that host an NFL team began tracking duty days on the first day of open practice, which was July 26. Arizona is the only exception, which begins counting duty days on the first day of the regular season.
Because the last regular season game of the 2016-17 season was held Jan. 1, 2017, an additional duty day for all away teams is added to this season’s total, bringing the total number of duty days to 160. For away games, each team spends at least two days in the state; translating to two duty days.
The two duty days are divided by the annual total of duty days (160), leaving most states the ability to tax 1.25 percent of a player’s total salary.
Cleveland, Cincinnati, Columbus, Kansas City, Mo., Philadelphia, Pittsburgh and St. Louis are among cities that tax visiting professional athletes with similar schemes.
Last year, the Ohio Supreme Court voided part of Cleveland’s system of levying a 2 percent tax on visiting NFL players’ salaries based on the number of games played in a season rather than the number of duty days spent in the city.
Bloomberg BNA analyzed the state-level jock tax burden of two Super Bowl-winning NFL quarterbacks: (1) Baltimore Ravens quarterback Joe Flacco who earns one of the league’s highest salaries; and (2) Seattle Seahawks quarterback Russell Wilson whose home stadium is in Washington state, which doesn’t impose an income or jock tax, arguably leaving the state at a revenue disadvantage.
Both quarterbacks play three games each in states without an income tax, but Wilson is hit especially hard for playing four times in California—the state with the highest income tax rate.
Players fall into the highest tax bracket in each state, despite only being taxed on a small percentage of their total salary, Packard said.
Wilson’s frequent trips to California help bring his total income tax bill there to $130,703, just under seven grand fewer than Flacco’s total bill across all states of $137,453, despite making $8.4 million less annually than Flacco.
California’s rate alone blindsides Flacco’s wallet, though: a mere two duty days spent in the state amounts to almost $35,000 owed in income tax.
Packard said the biggest tax issue athletes run into comes with claiming residency: some players attempt to claim residency in a income tax-free state while residing elsewhere. State residency is granted to a taxpayer if they reside in a state for 183 days in a year.
“The non-resident income tax can be difficult to administer and is frequently ignored, but since professional athletes’ salaries and travel schedules are publicly available, they are ripe targets for state tax authorities,” Jackson Brainerd, policy associate at the National Conference of State Legislatures, told Bloomberg BNA in an email.
The jock tax doesn’t apply solely to professional athletes, but to all employees traveling with the team as well, including trainers, scouts, administrative employees—if they receive income and are authorized to travel with the team. This is a significant burden that many overlook, Packard said.
“We are talking about individuals who only make $50,000-$60,000 a year, to file tax returns in upwards of eight jurisdictions a year is costly and time consuming for lower-level employees,” Packard said. “It’s not just millionaires facing the tax.”
Some practitioners see the tax as equal parts easy for the state and difficult for the taxpayer.
Florida, Tennessee, Texas, and Washington state all face a separate jock tax issue. Each state hosts an NFL team, but doesn’t have an income tax, and therefore can’t collect a jock tax regardless if their residents pay taxes when visiting other states.
In Tennessee, a seven-year-long professional “privilege tax” targeting players within the National Basketball Association came to an end in June of 2016. Players were taxed $2,500 per game—with a $7,500 annual cap— between 2009 and 2016. National Hockey League players also faced the tax up until 2014; NFL players were exempt from the tax.
In total, Tennessee collected about $18.8 million from the professional privilege tax on NHL and NBA athletes from fiscal year 2010 through FY 2015.
States unable to enforce a jock tax often argue their residents facing the tax elsewhere are foregoing potential income that could be spent in the state, contributing to sales and use tax revenue.
But Packard said “these are amounts of money more likely to be invested than spent in a specific state.”
In Washington state, the idea of a privilege tax to grab some of the lost revenue has been floated around the state Legislature, but hasn’t gained much headway, Packard said.
Arizona acts as a “wildcard” when it comes to jock-tax and duty-day enforcement. In addition to delaying its count of duty days for the NFL, the state also “pauses” the count during “Cactus League,” Major League Baseball’s spring training the state hosts every year.
The state temporarily freezes its enforcement of duty days to attract both the MLB to its sunny weather and floods of revenue from tourism, reactivating the duty days with the first swing of the regular season.
The Cactus League features half of the MLB’s 30 teams. The remaining 15 teams practice in the “Grapefruit League” located in Florida, where there is no income tax.
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