Michael Jordan is a household name around the world, but did you know he is one of the most prominent figures when it comes to taxes and sports? Professional athletes and other individuals who work alongside sports teams are taxed when they visit a state to play an opposing team. This is often referred to as the “jock tax” and it is imposed in almost every state. So what does Michael Jordan have to do with this tax?
The NBA finals in 1991 featured Michael Jordan’s Chicago Bulls and the Los Angeles Lakers. Following the finals, California assessed state income tax against Michael Jordan and the Bulls because of the games played in California. Perhaps, the state of California and the Lakers were trying to get back at the Bulls and Michael Jordan for beating them in the NBA finals that year. In any event, the state of Illinois then enacted its own law to tax California athletes that came to Chicago, Illinois – hence the name, “Michael Jordan’s Revenge.” After this, other states followed suit to enact their own “jock tax.” To illustrate the reach of the “jock tax,” it is reported that NBA star Stephen Curry paid nearly 1 million dollars in taxes to 18 other states in 2018. It is also reported that on average, an NFL player will file between 8-12 state income tax returns.
How can states tax professional athletes like this and is it constitutional? The short answer is yes. After all, taxpayers who work in other states are subject to the same type of taxes in multiple states since they performed services in those other jurisdictions. However, the answer gets messier when states try to asses fees. For example, in September 2022, the Court of Common Pleas of Allegheny County ruled a part of Pittsburgh’s “jock tax” was unconstitutional. More specifically, Pittsburgh assessed a “fee” for non-resident professional athletes who used sports venues in the state a 3% assessment on personal income earned. The amount was withheld from the non-resident’s game check. Resident athletes did not have this same “fee.” The Court of Common Pleas ruled that the “fee” was unconstitutional as it was actually a tax in substance and it was not uniform for Pittsburgh residents and non-residents. So while the jock tax can be constitutional, it is not limitless.
It is for these reasons that athletes may be persuaded to join teams in states that have lower income tax rates – at least then only about half of their regular seasons games will be subject to tax in other states.
It is important to work with a team of professionals, such as an estate planning attorney and a CPA, who understand the complex world of tax laws. If you have any questions, please do not hesitate to contact us!