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- Tennessee Jock Tax Gets Full Court Press
Tennessee Jock Tax Gets Full Court Press
Recently, the Tennessee legislature held a hearing on the state’s privilege tax on professional athletes. The tax, enacted in 2009, levies a $2,500 charge on National Basketball Association (NBA) and National Hockey League (NHL) players performing in Tennessee, but exempts players in the National Football League (NFL). The charge maxes out at three games for a maximum total tax of $7,500 per year. The charge is the same flat rate for visiting athletes as it is for players on teams based in Tennessee. Instead of the proceeds going directly to the state, the tax revenue goes to the Memphis Grizzlies and Nashville Predators to subsidize the operations of their stadiums.
Many people think of Tennessee as a low tax state because they do not have a personal income tax. However, this is not so for visiting professional athletes. In fact, Tennessee’s tax ends up being one of the highest in the nation on visiting professional athletes. A visiting player being paid the league minimum would actually break even or possibly even lose money when he plays in Tennessee. For example, an NHL player making the league minimum of $525,000 over the course of 207 duty days would be paid $2,536.23 per day. For one game in Tennessee he would be taxed $2,500, leaving him only $36.23 for a one-game tax rate of 98.57%. When federal income taxes are taken into account the player would actually lose money for the game. Indeed, the NHL Players Association (NHLPA) argued at the recent hearing that 43% of NHL players wind up having to pay out of pocket to play in Tennessee.
A recent article in the Marquette Sports Law Review argues that the tax violates the commerce clause because it effectively taxes nonresidents differently than residents. For example, a visiting athlete playing up to three games will pay $2,500 per game played in Tennessee up to a total of $7,500. But a resident athlete will play 41 home games in Tennessee and still only pay $7,500, which means he will effectively pay only $182.93 per game played in Tennessee.
The article also argues the tax is unconstitutional because it is not fairly apportioned to the work being done in Tennessee. The principle of external consistency holds that a state should only tax the portion of income that is fairly attributable to economic activity within the state. Since the state levies a flat tax equal to almost all of a lower-paid player’s game-day income, there is a complete lack of apportionment to economic activity in Tennessee.
The NHL and NHLPA are currently negotiating with Tennessee lawmakers to reach a solution to this problem of disparate tax treatment. If these negotiations are unsuccessful, the NHLPA has threatened to file a lawsuit to invalidate the tax. A court may one day decide whether this tax is unconstitutional or not, but regardless of any outcome in the courts, the tax is bad policy. It violates the principle of neutrality because it singles out professional athletes, especially lower-paid visiting athletes, for taxation. To make matters worse, it inexplicably singles out specific professional athletes in the NHL and NBA while exempting those in the NFL.
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