Tennessee Jock Tax Finally Sacked
April 15, 2014
Tennessee lawmakers recently voted to repeal the state’s version of the so-called “jock tax.” The tax will be repealed effective immediately for NHL players, but will remain in effect for NBA players until June 1, 2016.
The jock tax is a colloquial expression used to describe the income tax levied on visiting professional team members. Each state with both an income tax and a professional sports team levies a jock tax. However, Tennessee’s version of the tax levied the same $2,500 flat rate on all team members, and was capped at $7,500 per year. For lower paid team members this led to a substantial financial burden. In fact, the NHL Players Association argued that a large percentage of its players actually lost money when they played in Tennessee.
Tennessee’s tax was also odd because it singled out NHL and NBA players while exempting NFL players. Even the repeal of the tax is a little odd because it singles out NBA players for taxation for two more years while now exempting NHL and NFL players. This is largely due to lobbying by the state’s NBA team, the Memphis Grizzlies. The Grizzlies’ executives favor the tax because the proceeds go directly to the team, which uses them to fund upgrades to the arena and to bring in concerts and other events.
There have also been questions about the constitutionality of Tennessee’s version of the tax. The lead sponsor of the repeal bill stated that his primary motivation was to put an end to a law that he believed was unconstitutional. He believed that the tax would not withstand a legal challenge because of the fact that NFL players were exempt, while NHL and NBA players were taxed.
He is not the only one who believes the tax is constitutionally suspect. An article in the Marquette Law Review argued that the tax violated the commerce clause because it taxed nonresidents differently than residents. A resident athlete would be taxed a maximum of $7,500 spread out over 41 home games, while a nonresident athlete would be taxed a maximum of $7,500 spread over only a few games. This would result in the nonresident athlete effectively being taxed a much higher per game rate than the resident athlete.
The law review article also argued that the tax was unconstitutional because it was not fairly apportioned to 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.
Even though it would have been better to repeal the tax altogether, rather than continuing to tax NBA players for another two years, once the tax is fully repealed it will result in much better tax policy. At least lawmakers in Tennessee took a step toward that laudable goal.