Sare ports big business in America. The country’s four largest professional leagues generate approximately $45 billion in revenue per year, more than half of the total produced by leagues worldwide. That creates many richly paid stars – and revenue-generating opportunities for governments. Consider the “jock tax,” an attempt by states and cities to lay claim to the income of visiting athletes.
Jock Tax gained attention in 1991 when Michael Jordan’s Chicago Bulls defeated the Los Angeles Lakers in the National Basketball Association finals – and California taxed them for their efforts. Illinois followed suit with the “Michael Jordan’s revenge” tax. Other states soon took action. The public was pleased: not only did the states tax the rich, they also hit the despised rivals of beloved home teams.
But a recent ruling in Pennsylvania could spell the end of the most egregious jock taxes. The city of Pittsburgh had charged non-resident athletes a 3% fee for use of its baseball, football and ice hockey facilities. Resident athletes, on the other hand, pay only 1% income tax to the city. On Jan. 10, a court struck down the levy, ruling it violated the state constitution, which calls for uniform taxes. Similar taxes have been repealed in Ohio and Tennessee, among others. Stephen Kidder of the law firm Hemenway & Barnes has represented players in such cases and says Pittsburgh was the last real outlier in imposing discriminatory taxes on athletes.
However, the ruling does not mean the end of jock taxes in general. State income taxes apply to all income earned in the state, including by non-residents. In practice, authorities rarely keep an eye on people as they move here and there for a few days. This does not apply to athletes, whose schedules are made public. California, for example, is estimated to collect more than $200 million a year in taxes on non-resident athletes. “Athletes are definitely being picked unfairly,” Kidder said.
Taxation based on place of work rather than residence does not constitute an additional tax, but a more complex tax return process. As long as athletes come from a state that has an income tax, they should have paid those taxes anyway – the question is to which government. Professional baseball players may have to file two dozen separate tax returns.
In an era of remote work, the fate of athletes is becoming increasingly known. Employees who work in different locations are required to file multiple tax returns, even though many do not. “The burden on athletes is a magnified version of what many taxpayers face now,” said Jared Walczak of the Tax Foundation, a think tank. To simplify things, some states have introduced tax filing thresholds. For example, Montana exempts non-residents if they work there for fewer than 30 days. But it still charges athletes and entertainers for one day’s work within its borders. As Mr. Walczak notes, “It doesn’t seem likely that professional athletes will get a break anytime soon.”■
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