The “Jock” tax – a tax on the income of pro athletes who live in one state and play in another

And you thought the only reason NFL players preferred to play the Super Bowl in Florida was because of the weather.

KobritzsmDenver Broncos quarterback Peyton Manning took two beatings last week, one from Seattle in the Super Bowl and a second one from the New Jersey taxman.  And unlike the game itself, no matter how well he played, there’s no way he would have beaten the tax collector.

It’s called the “Jock Tax,” a tax on the income of professional athletes who live in one state and play games in another.  Here’s how it works.  Take Peyton, he of the $15 million annual salary.  The Broncos spent eight days in New Jersey preparing for and playing in the Super Bowl.  New Jersey tax law maintains that a portion of Manning’s salary is therefore earned while on state soil.  The NFL season is approximately 235 days – referred to as “duty days” – long.  Therefore, approximately 3.4 per cent of Manning’s $15 million salary, or $510,000, is taxable in New Jersey.football

But wait, there’s more.  Peyton’s Super Bowl earnings of $46,000 (the winner’s received $92,000 each), along with $23,000 he earned when the Broncos won the Divisional Playoffs and $42,000 for winning the Conference Championship game are added to his annual salary prior to computing his New Jersey tax debt.   New Jersey has one of the highest individual income tax rates in the country at 8.97 percent, which means Manning’s tax bite for his Super Bowl activities is $46,086, as much as he earned for playing the game.  Ouch!

The computation assumes that Peyton plays this year – last year’s $15 million salary doesn’t count towards 2014 income.  If he opts to retire, New Jersey will receive a larger percentage of his playoff earnings – based on fewer duty days – but fewer tax dollars overall.

Of course, Manning isn’t being singled out; he just happens to be the highest paid player on either team.  Every player on both Super Bowl teams, along with support personnel – e.g., coaches and trainers – is assessed the jock tax.  And the jock tax isn’t limited to athletes.  Every state with an income tax has some version of a “commuter” tax that doesn’t differentiate where the check comes from, as long as the “labor” is conducted in the taxing state.

Only nine states – Alaska, Florida, Texas, Wyoming, Nevada, South Dakota, New Hampshire, Tennessee and Washington – exempt wage income from taxation.  Major League teams are located in 25 states, only three of which – Florida, Texas and Washington (Tennessee imposes a “privilege tax” on visiting athletes) – do not collect a jock tax.  Add in cities – such as Cleveland, Detroit and Philadelphia – that impose their own jock tax, and you can understand why athletes in some sports are required to file upwards of 20 tax returns a year.  Call it the “Accountants’ Retirement and Relief Program.”

It may be difficult to conjure up any sympathy for the Peyton Mannings of the world.  Nonetheless, there’s an odor to the jock tax that reeks of discrimination.  Technically, the tax applies to everyone who “earns” their income in a foreign state, even the media who covered the Super Bowl.  But no one cares about them.  High profile athletes, on the other hand, are easy targets.

The jock tax was so named after one of the greatest athletes of all time, Michael Jordan.  After the Bulls beat the Lakers in the 1991 NBA Finals, California, perhaps in retribution, sent Jordan a tax bill.  In response, the Illinois legislature passed a bill that taxed athletes who visited their state to play.  Many other states soon followed.  The tit-for-tat was a financial boon for Illinois.  While the Prairie State is home to only five Major League sports teams, California houses 15, all of whom visit Illinois at one time or another.  But shed no tears for the Golden State.  Their take from visiting athletes is approximately $100 million per year.

It should be pointed out that if an athlete pays income tax in one state, he receives a credit against taxes from his home state.  That’s all well and good for Manning, whose “home state,” Colorado, imposes an income tax.  But for athletes who play for teams located in Florida, Texas or Washington, there is no similar benefit.

And you thought the only reason NFL players preferred to play the Super Bowl in Florida was because of the weather.

Jordan Kobritz is a former attorney, CPA, and Minor League Baseball team owner.  He is a Professor in the Sport Management Department at SUNY Cortland and maintains the blog: http://sportsbeyondthelines.com  Jordan can be reached at jordan.kobritz@cortland.edu.

 

© Copyright 2014 Tanna K, All rights Reserved. Written For: Tinytown Unleashed
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