FirstEnergy Stadium, Home of the Cleveland Browns. Photo by Erik Drost.Politicians looking for sources of tax revenue may think that traveling professional athletes are an easy target, but the Ohio Supreme Court recently provided a reminder that sports stars are still entitled to due process.
The two cases in question centered on Cleveland’s version of the so-called “jock tax.” Taxes levied against visiting professional athletes are far from uncommon; according to Sports Illustrated, 22 of the 26 states with professional sports teams have some form of jock tax, and Cleveland is one of eight cities that has adopted a municipal version. By now, most athletes have accepted the idea of paying extra taxes when they play in other states as simply part of the cost of doing business.
But Cleveland stood out. That’s because of the way that the city calculates the portion of an athlete’s income to be taxed. Its unique method bases the calculation on the number of games an athlete plays in Cleveland out of the total games played in a season. For the athletes in the two cases at issue, this meant one game in Cleveland over a regular 20-game NFL season (including preseason games) resulted in Cleveland applying its income tax to 5 percent of the player’s income.
The more typical way of formulating a jock tax is to consider how many working days in a season an athlete spends in a given city or state. This is the same fundamental concept we all use when determining which states or cities we owe income tax, even if we’re better at throwing a party than throwing a spiral.
Hunter Hillenmeyer, a former linebacker for the Chicago Bears, asserted that the two days he spent in Cleveland were part of a much larger pool of days over which he earned his salary. His compensation, Hillenmeyer argued, was not simply for his play on game days, but for showing up to practices, preseason training and team meetings as well. Ohio’s high court agreed, saying that the typical “duty-days” method meant Cleveland should have taxed approximately 1.25 percent of Hillenmeyer’s income for his two-day trip, rather than 5 percent for the single game.
The other Ohio case arguably represented an even greater overreach. Jeff Saturday, a former center for the Indianapolis Colts, missed the game in question because of an injury. He never set foot in Cleveland during the season at issue. Yet because he was excused from a game played in the city, Cleveland argued he still technically earned that portion of his salary there. The Ohio Supreme Court did not buy this argument either.
Neither Hillenmeyer nor Saturday sought much in the way of recompense - the refunds they sought were only four figures. But several sports leagues stepped up earlier this year to express their support, criticizing Cleveland’s law. The question is one of fairness, rather than the actual amounts involved. Cleveland intends to ask the U.S. Supreme Court to rule on the constitutionality of its game-day formulation, but if the high court declines to hear the case, the city will have no choice but to reconfigure its policy.
An unusually tough jock tax makes a state or municipality a target for a legal challenge. Tennessee recently discovered the same harsh truth. The state has no income tax to apply to out-of-town athletes; instead, visiting NHL and NBA players faced a flat tax of $2,500 per game in Tennessee, with a $7,500 cap for the year. (Football players were not included in the tax.) Tennessee’s tax was also unusual in that the money went to the home teams’ owners, rather than to the state government. Tennessee’s legislature repealed the tax last summer, and more recently reached a settlement with current and former NHL players who were taxed between 2009 and 2012. A similar lawsuit from NBA players is still pending.
It is easy to understand why politicians find jock taxes, or similar taxes aimed at touring entertainers, attractive. Not only do professional athletes have a large amount of income to tax, but visiting players don’t vote for (or against) the people taxing them. But Cleveland and Tennessee prove that athletes will push back eventually if legislatures overreach.
“Professional athletes have come to realize that this (jock taxes) is a part of the landscape for them,” Stephen Kidder, a tax lawyer involved in the NBA player dispute in Tennessee, told The Washington Post. “When they object, it’s when they’re being treated completely differently from other taxpayers. That’s what was happening in Cleveland, that’s what was happening in Tennessee.”
Cleveland got greedy, and their model was bound to get challenged as a result. While pinning down where a person earns their income can often prove challenging in the modern work world, Cleveland’s formula for professional athletes was never going to hold up on closer inspection.
Posted by Paul Jacobs, CFP®, EA
FirstEnergy Stadium, Home of the Cleveland Browns. Photo by Erik Drost.
Politicians looking for sources of tax revenue may think that traveling professional athletes are an easy target, but the Ohio Supreme Court recently provided a reminder that sports stars are still entitled to due process.
The two cases in question centered on Cleveland’s version of the so-called “jock tax.” Taxes levied against visiting professional athletes are far from uncommon; according to Sports Illustrated, 22 of the 26 states with professional sports teams have some form of jock tax, and Cleveland is one of eight cities that has adopted a municipal version. By now, most athletes have accepted the idea of paying extra taxes when they play in other states as simply part of the cost of doing business.
But Cleveland stood out. That’s because of the way that the city calculates the portion of an athlete’s income to be taxed. Its unique method bases the calculation on the number of games an athlete plays in Cleveland out of the total games played in a season. For the athletes in the two cases at issue, this meant one game in Cleveland over a regular 20-game NFL season (including preseason games) resulted in Cleveland applying its income tax to 5 percent of the player’s income.
The more typical way of formulating a jock tax is to consider how many working days in a season an athlete spends in a given city or state. This is the same fundamental concept we all use when determining which states or cities we owe income tax, even if we’re better at throwing a party than throwing a spiral.
Hunter Hillenmeyer, a former linebacker for the Chicago Bears, asserted that the two days he spent in Cleveland were part of a much larger pool of days over which he earned his salary. His compensation, Hillenmeyer argued, was not simply for his play on game days, but for showing up to practices, preseason training and team meetings as well. Ohio’s high court agreed, saying that the typical “duty-days” method meant Cleveland should have taxed approximately 1.25 percent of Hillenmeyer’s income for his two-day trip, rather than 5 percent for the single game.
The other Ohio case arguably represented an even greater overreach. Jeff Saturday, a former center for the Indianapolis Colts, missed the game in question because of an injury. He never set foot in Cleveland during the season at issue. Yet because he was excused from a game played in the city, Cleveland argued he still technically earned that portion of his salary there. The Ohio Supreme Court did not buy this argument either.
Neither Hillenmeyer nor Saturday sought much in the way of recompense - the refunds they sought were only four figures. But several sports leagues stepped up earlier this year to express their support, criticizing Cleveland’s law. The question is one of fairness, rather than the actual amounts involved. Cleveland intends to ask the U.S. Supreme Court to rule on the constitutionality of its game-day formulation, but if the high court declines to hear the case, the city will have no choice but to reconfigure its policy.
An unusually tough jock tax makes a state or municipality a target for a legal challenge. Tennessee recently discovered the same harsh truth. The state has no income tax to apply to out-of-town athletes; instead, visiting NHL and NBA players faced a flat tax of $2,500 per game in Tennessee, with a $7,500 cap for the year. (Football players were not included in the tax.) Tennessee’s tax was also unusual in that the money went to the home teams’ owners, rather than to the state government. Tennessee’s legislature repealed the tax last summer, and more recently reached a settlement with current and former NHL players who were taxed between 2009 and 2012. A similar lawsuit from NBA players is still pending.
It is easy to understand why politicians find jock taxes, or similar taxes aimed at touring entertainers, attractive. Not only do professional athletes have a large amount of income to tax, but visiting players don’t vote for (or against) the people taxing them. But Cleveland and Tennessee prove that athletes will push back eventually if legislatures overreach.
“Professional athletes have come to realize that this (jock taxes) is a part of the landscape for them,” Stephen Kidder, a tax lawyer involved in the NBA player dispute in Tennessee, told The Washington Post. “When they object, it’s when they’re being treated completely differently from other taxpayers. That’s what was happening in Cleveland, that’s what was happening in Tennessee.”
Cleveland got greedy, and their model was bound to get challenged as a result. While pinning down where a person earns their income can often prove challenging in the modern work world, Cleveland’s formula for professional athletes was never going to hold up on closer inspection.
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