Jock Tax

Posted on March 07, 2017

The everyday American will mostly file state income taxes in the states where they reside. Professional athletes have an added liability, the “jock tax.” The jock tax is imposed against visitors to a city or state who earn money in that jurisdiction. Professional athletes are an easy target for this type of tax because their salaries, bonuses, and schedules are all public knowledge. The state can compute and collect the tax without spending a substantial amount of time and effort.

The modern jock tax came into effect following the 1991 NBA Finals between the Los Angeles Lakers and the Chicago Bulls. The state of California imposed the jock tax on the earnings of the Chicago Bulls players, coaches, trainers, and other staff who made the trip. Illinois quickly retaliated with its own jock tax, commonly known to Chicago folk as, “Michael Jordan’s Revenge.” The Illinois jock tax law states, “If you tax us we’ll tax you right back.” Now 21 states and 8 municipalities have jock taxes. California to date has the highest version of the jock tax at 13.3%, and in 2013 the state collected $229.2 million in tax revenues from visiting professional teams. 

In Tennessee, instead of a certain percentage of salary the state would charge a jock tax of $2,500 per game for up to three games. Those millions in tax dollars were used to fund the state’s two arenas in Nashville and Memphis. The NBA eventually sued the state claiming that dozens of players owed more in taxes than they had earned while playing. A settlement was agreed upon in 2014, and the city of Memphis has paid out over $2.38 million of the jock tax that was collected since 2009. Now Tennessee has put an end to the jock tax, and the 2016-2017 season is the first season in which NBA players will not be subject to a tax while playing in Tennessee.

There is no jock tax in Florida, Washington, Washington DC, Tennessee, and Texas. This past February, the nation’s most watched sporting event, the Super Bowl was held in Houston, Texas between the New England Patriots and the Atlanta Falcons. That gave thousands of reasons for players and staff on both teams to celebrate their achievements of reaching this illustrious game. Players on the winning team earn close to $110,000 per player along with their Super Bowl ring valued at $20-25k while those on the losing side each get $53,000. Compared to the 2016 Super Bowl in California, the winners had to pay up roughly $17,000 each in tax dollars while the losers paid about $7,000.

When you see a new NFL or NBA player has signed a multi-million dollar contract just know that he will be filing taxes in 15-20 different states each year. This forces athletes to hire accountants to handle their taxes. Imagine being an equipment manager or scout who does not make much more than the national median income and having the burden of filing all those income tax returns without having the extra finances to hire professional help. The Tax Foundation states, “This tax hits many people who may not be able to easily absorb the substantial compliance costs associated with the tax.”

Allyn Contributor:  Ethan Piazza

Tips for the Taxpayer

Stay up-to-date with the latest state and local tax rates. Make sure you are checking for any obscure tax laws that may apply to you or your company. You are responsible for paying taxes in all states where income was received. In an audit, the taxpayer will be responsible for the correct tax amount. Stay current with your state, county, and city legislation.

For More Information

If you are interested in learning more about this topic or other tax topics, please visit our Tax Publications under News and Events at www.allynintl.com.

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