By Jonathan Nehring | Disclaimer

On last night's episode of John Oliver's show Last Week Tonight he discusses the notion of taxpayer funded sports stadiums. He gives examples of sports stadiums in Detroit and Cincinnati as well as Milwaukee's current discussion of funding the Bucks new arena. You can watch him discuss the topic in it's entirety below. Enjoy!

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By Jonathan Nehring | Disclaimer

Tonight's NBA Draft will introduce the best basketball players in the world to many new opportunities. One opportunity these stars may not have been aware of until now, is the "opportunity" to pay the "Jock Tax" in over 20 states. 

Below is a look at how much "Jock Tax" the newest NBA stars will owe in the coming future:

(click image for larger image)

NOTE: NBA 1st Round Draft Picks are only guaranteed a two year contract but there are team options for the 3rd and 4th year and a minimum salary amount the NBA team must offer that player for their 5th year salary. The above amounts assume each player will be signed through the 5th year of their Rookie-Scale contracts. 

NOTE: The tax figures above are estimated under the assumption the athlete lives in a state without an income tax thus only subject to the "Jock Tax".

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By Jonathan Nehring | Disclaimer

The latest batch of top basketball talent will be watching ping pong balls drop tonight to see where they could end up in June’s NBA Draft. While the draft order is uncertain, one thing is for sure – these rookies will face a very taxing start to their career. Of the teams with the highest odds to land a lottery pick, many of those teams reside in states with some of the country’s highest state tax rates.  

Below is a table (click image to enlarge) combining the odds of each team getting each lottery draft pick (put together by Brett Pollakoff of Pro Basketball Talk) with the top income tax rates that rookie would pay on all home games for that team and how that team’s tax burden ranks compared to all other NBA teams. In regards to the “Team Tax Rank”, because multiple teams reside in various states, the worst possible ranking is 23.

If career earnings is your main goal, it appears future NBA hopefuls may want to avoid being a top pick in the 2015 NBA draft.  

NOTE: It is possible the 76ers could get the Lakers pick if the Lakers pick is 6th or 7th, and the 76ers could also end up with Heat's pick if it is lower than the 10th pick.

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By Jonathan Nehring | Disclaimer

If you are a football player who is ending their collegiate career to become a NFL player, you spend the off season putting in hours and hours of hard work to show off your talent to NFL scouts. On one day. Usually, one chance.  We typically call that day "Pro Day". 

If you are a tax preparer who is hoping to work with some of the most prestigious but complex clients you generally do the same. Put in hours and hours of hard work to show off your talent on one day. However, we call that day "Tax Day". 

Those tax advisers who specialize in the taxation of professional athletes were no exception in this season's Tax Day. Several industry leaders got a chance to dust of their "trophy case" when they were featured in recent news stories. Below are summaries and links to all of the articles which featured professional athlete tax advisers. 

• Last Friday, Robert Raiola wrote a long-form article for Sports Illustrated which provided an overview on several specific issues faced by professional athletes. Among the issues Raiola discussed were an overview and history of the "jock tax", the importance of a taxpayer's domicile, and tax deductions not typically available to general taxpayers but available to professional athletes. Raiola, who is the Sports & Entertainment Senior Group Manager at O'Connor Davies, LLP, warned in his article that professional athletes who "[leave] tax planning as an off season checklist item could result in more work and missed opportunities for deductions."

• Also last Friday, Mary Pilon of the New Yorker magazine wrote an article which highlighted a similar "jock tax" overview, discussed current "jock tax" issues, and profiled the work of Mark Goldstick, CFO of sports agency Priority Sports and Entertainment. Among the issues highlighted by Pilon were Wisconsin's Governor, Scott Walker, attempting to fund a new Milwaukee Bucks' stadium with money from the "jock tax", and a court case regarding the "jock tax" that is currently pending before the Ohio Supreme Court. Pilon was kind enough to interview and quote me in her article on some of these current issues. In Pilon's profile of Goldstick, Mark shared "war stories" such as the need for him to frequently advise professional athletes against taking tax deductions encouraged to the athlete by other accountants because they are an aggressive and improper interpretation of tax laws. 
  
• Yesterday, Erik Brady of USA TODAY Sports wrote an article primarily focused on the work of K. Sean Packard, tax director for OFS Wealth - a wealth management team associated with the sports agency Octagon. In this profile, Packard shared just how hectic tax compliance, and particularly - tax season, can be for the tax advisers of professional athletes. Packard is responsible for the tax compliance of over 200 athletes within nearly 30 state tax jurisdictions and 8 city tax jurisdictions. One of the major complexities Packard highlighted was comparing (but often - contrasting) the withholding tax documents of professional athletes to Packard's estimation of tax due.
• Lastly, Greg Ryan of the Boston Business Journal profiled in his article yesterday "the attorney trying to cut the 'jock tax' on Tom Brady and his pro-sports peers." Although Ryan's article coincides with Tax Day, his article highlights two tax cases represented by Stephen Kidder, partner at Hemenway & Barnes LLP, that involve the taxation of professional athletes.  Kidder is representing the professional athlete taxpayers in a case before the Ohio Supreme Court which argues the constitutionality of Cleveland's income apportionment formula. He is also representing several professional athlete taxpayers in a refund claim against Tennessee for the "jock tax" they previously assessed but have since repealed due to fears their format could be ruled unconstitutional. Kidder's cases may not force him to meet any 4/15 deadlines but as the tax counsel for the player associations of the NFL, NBA, MLB, NHL and MLS, every day probably seems like Tax Day to Kidder. 

While I encourage you to read all of these stories, I think the quote of a professional athlete interviewed in Erik Brady's story best summarizes Tax Day - and tax season - for professional athletes: "nobody knows what's going on." 

Happy Tax Day everyone!

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By Jonathan Nehring | Disclaimer

While TaxaBall has previously detailed how the “jock tax” works, the general “jock tax” calculation is relevant for this discussion and repeated below.

“Jock Tax” Overview
Like all US citizens, professional athletes must pay both federal and state income taxes. However, under what is commonly referred to as the “jock tax”, professional athletes pay state income tax in each state they play. The legal theory is that you are required to pay state income taxes in the state you earn that income and thus the professional athletes earn income in the stadiums they play in each season. But how much income does an athlete “earn” in each state? Does a player earn their money only by playing games or do they earn their money when practicing, making media appearances, off-season workouts, etc.?

To solve this problem, states have generally adopted what is known as the “duty day” method to calculate how much income athletes earn in their state. This method is calculated as the percentage of duty days spent in the respective state compared to the total duty days that athlete had that season multiplied by the player’s salary. 

A duty day is generally defined as a day when an athlete participates in any form of team activity. This includes official offseason workouts, playoff games, preseason games, travel days, team media appearances, etc.

While the duty day method is used by most states, it is not used by all states. For example, Tennessee used to charge a flat fee for their “jock tax”, and Cleveland, OH currently utilizes a “games played” method. Arizona, as detailed below, is another state who uses a unique approach to calculate how much income is earned by professional athletes in Arizona. 

Arizona’s “Duty Day” Approach
Instead of defining a duty day as any day when an athlete participates in any form of team activity, Arizona defines a duty day as “all days during a taxable year from the beginning of a professional athletic team’s first regular game of the season through the last game in which the team competes.”

While calculating duty days from the first regular season game may not seem significant, this small change in calculation didn't happen by mistake. To understand why, it is necessary to understand the history of professional sports teams in Arizona.

States did not begin to focus on professional athletes as a large source of tax revenue until the 1990’s. Arizona, in particular, didn't provide the regulation quoted above until 2001. At the time Arizona implemented this regulation, they were quite inexperienced with taxing professional athletes. Unlike California who had already been taxing professional athletes for decades, Arizona had only had an MLB team for 3 years, an NHL team for 5 years, an NFL team for 13 years and their NBA team for a little over 30 years. So why would a state with little experience taxing professional athletes create a regulation so specific?

As far back as the 1929 Detroit Tigers, MLB teams have been conducting Spring Training in Arizona. In 2000, when this rule was being considered, all 30 MLB teams conducted spring training in only two states - Florida or Arizona. Of course Florida doesn't collect income tax at all. Therefore, had Arizona decided to adopt the traditional duty day calculation that most states have adopted they would be collecting 4.54% of every MLB player’s salary during spring training while teams training in Florida would have been playing tax free. Fearful that players and teams would move their spring training locations to Florida (or another state that doesn't charge income tax e.g. Texas), Arizona valued the economic impact that spring training brings them over the economic impact taxing MLB player’s salaries would bring Arizona.

This is a big win for MLB players because regardless of which team they play for, they are not taxed for state income taxes on at least 20% of their salary each year. How big of an impact does this Arizona regulation have? Had Arizona taxed the 15 MLB teams that have Spring Training in Arizona they would have received an estimated $14MM in tax revenue in 2013. 

To the right is a list of the MLB players who will save the most money by Arizona not taxing income earned in Spring Training.[1]

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