Pressure Mounts Against “Jock Tax” in Tennessee

December 17, 2013

In August I wrote about Tennessee’s version of the “jock tax,” which requires NBA and NHL players to pay $2,500 per game played in the state, up to a maximum of $7,500 per year. Now Bloomberg has taken notice of the tax, pointing out that the tax may not be worth the trouble it takes to collect it. The article suggests that the NBA reimburse its players for tax payments made to Tennessee just like the NHL agreed to do for its players. More importantly, the author of the article points out that the state collects only about $3.6 million per year from professional athletes, accounting for only a half-percent of the state’s budget.

Tennessee’s jock tax is relatively new, enacted in 2009 as a way to target who some perceive to be well-off, non-residents who cannot voice their displeasure at the ballot box. However, the tax is extremely unfair to lower-paid athletes, some of whom end up paying more in taxes than they earn for a game. Athletes can end up paying an extremely high tax rate because Tennessee imposes a tax of $2,500 per game for each player.

For example, a player at the NBA league minimum of $500,000 who is paid per game would make about $6,097 per game. If the player plays only one game in Tennessee he would pay a tax of $2,500 for that game, which is a tax rate of 41 percent. It is also worth noting that the player would also pay approximately 40 percent in federal income taxes, potentially leaving almost nothing in take home pay.

While the player’s home state will give a credit for the Tennessee tax paid, this doesn’t even things out. If the player lives in a state with no income tax, he will not receive a credit in his home state and will bear the full burden of the Tennessee tax. If his home state allows him a credit, they will only credit him for taxes paid out of state up to the amount he would have paid in state. This means that if he lives in a low tax state he will receive a credit of approximately 3 or 4 percent when he effectively paid 41 percent. Even if we assume he comes from California, with the nation’s highest income tax rate, he will receive a credit up to 13.3 percent of his income for one game in Tennessee. So he would receive a credit of approximately $411 at home, leaving him to pay the remaining $2,089 for the game in Tennessee. If it were actually a wash between the states, that’s all the more reason that these burdensome and complex “jock taxes” should be eliminated.

Check out the Bloomberg article here.

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