Gary Hufbauer is the Reginald Jones Senior Fellow at the Peterson Institute for International Economics.
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Recently, former NFL player Jeff Saturday lost his appeal of an income tax assessment by the city of Cleveland. Jeff Saturday was taxed by the city of Cleveland for a game even though he was injured and did not travel to Cleveland. Instead, he stayed in Indianapolis for rehabilitation on his injury. However, the city argued that it had the right to tax his income as if he would have traveled to the city. This sort of complexity and misunderstanding has become commonplace in the realm of enforcement of income tax collection on out-of-town professional athletes, sometimes called jock taxes.
The city of Cleveland argued that it has the right to tax income for the sick days of employees, and argued that Saturday not traveling with the team because of an injury was the equivalent of a sick day. Saturday appealed to the Board of Tax Appeals (BTA), which ruled against him. The BTA ruled that it did not have the authority to examine the method used to calculate his tax liability ("games-played" method) or whether the city should be allowed to tax someone who didn't travel to the city. The BTA ruled that it only had the authority to review whether the city Tax Administrator properly followed Ohio law, and it ruled that the Administrator properly calculated Saturday's income according to the law.
In a separate case, the BTA also ruled against Hunter Hillenmeyer, a former NFL linebacker, who also sued the city over the method used to calculate his tax liability. Hillenmeyer also lost his appeal because the BTA ruled that it could not review whether the games-played method is the proper method to calculate income tax. It ruled that it only had the authority to examine whether the Tax Administrator followed Ohio law when calculating Hillenmeyer's tax liability. Both players argued that the city should be required to use the "duty days" method of calculating tax liability, rather than the games-played method.
The city currently uses the games-played method, which means it takes the number of games played in the city and divides it into the number of games the player was eligible to play in overall that season. The city then multiplies this number by the player's income, which results in the percentage of income that is attributable to the city. That income is then taxed at normal income tax rates. In this case it means that the city divided the one game Hillenmeyer played in Cleveland into the 20 total games he was eligible to play in (4 preseason games and 16 regular season games), then multiplied that percentage by his income to arrive at the percentage of income attributable to the city, and then taxed that income.
The duty days method is commonly used by other states and cities and works in much the same way, except that it takes into account all days spent working for the team instead of only counting games. For example, a state using the duty days method would count up the number of days the player spent playing games, practicing, and attending team meetings, then it would divide that number into the total number of days the player engaged in those activities overall during the season. The state would then take this number and multiply it by the player's income. This would result in the percentage of income attributable to the city, which is then taxed at normal income tax rates.
Players typically prefer the more commonly used duty-days method because it results in a lower tax bill. It is also arguably a more accurate way to apportion an athlete's income among locations because it takes into account all of the activities that an athlete is required to undertake for his team. Calculating what Hillenmeyer's tax bill would have been using the duty-days method is difficult without knowing details of the team's practice and meeting schedule, but would likely result in the city apportioning somewhere around 1/170th of his income, rather than 1/20th, which would result in a much lower tax bill. Jeff Saturday hasn't commented on whether he plans to appeal yet, but Hillenmeyer's attorney recently indicated that he plans to appeal to the Ohio Supreme Court in order to have his constitutional arguments heard.
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