Preston Schmitt has been doing some killer research around the idea of a new arena in Milwaukee. He’s put together an extensive glossary to help you understand the situation and parties involved. It’s necessary reading. Today, he digs further into the idea of a “jock tax”, just what that entails and how it can be used to help fund a new arena. Give him a follow on Twitter. He’s swell. – JS
“I’ve got a family to feed.”
Latrell Sprewell didn’t do himself any favors by spilling that hyperbolic statement in 2004, when the guard was angling for a contract extension at age 34. He was making $14.6 million that season. Naturally, fans pounced.
Sprewell’s quote is Exhibit A in why sports fans lack sympathy for professional athletes – context be damned. It’s not easy to empathize with a millionaire’s problems; it’s even harder to relate to athletes who can be as out of touch as that.
Conveniently, Sprewell also serves as an apt introduction to the topic of this article, considering the Milwaukee native joined former Bucks forward Anthony Mason atop the Wisconsin Department of Revenue’s list of top 100 delinquent taxpayers in 2011. (Neither Sprewell nor Mason appears on the list presently.)
Yes – we’re talking about practice taxes.
Last month, Wisconsin Gov. Scott Walker floated around the idea of using Wisconsin’s “jock tax” as a potential revenue source for financing a new Milwaukee arena. Former Bucks owner Herb Kohl and new owners Marc Lasry and Wes Edens have committed to contributing a combined $200 million to the new arena. By most estimates, a state-of-the-art facility in Milwaukee will cost between $400 million to $500 million. Therefore, some – if not most – of the difference in cost will have to come through public financing. Diverting a source of revenue that the state already collects – professional athletes’ income taxes, or the “jock tax” – to a new arena project is certainly a viable option, though not without its controversies.
“Jock Tax” introduction
In short, a “jock tax” is simply an income tax.
Obviously, residents must abide by their state’s local income tax regulations. However, states (and cities) also have the right to impose local income taxes on visiting workers. One justification for such a measure is that the state is freely allowing visiting workers to conduct business within its borders. Furthermore, some visitors could be using the visiting state’s resources while collecting a paycheck from their home state; thus, if they aren’t paying a nonresident income tax, they are not contributing to the visiting state’s resources – stadiums, roads, services, public buildings, etc. – from which they’re benefiting and earning an income, however short term .
For instance, if an NBA player resides in Wisconsin but plays for (and gets paid by) the Los Angeles Lakers, it makes sense that he has to file income tax returns in both states. However, it gets tricky when “jock taxes” in other states and cities require him to pay income taxes to the different places he visits on road trips, even if he’s only staying one night or not traveling with the team due to injury.
Professional athletes are practical – or vulnerable, depending on the perspective – targets for these taxes due to their high visibility and salaries. Often, it’s not whether a state has a “jock tax” – it’s whether a state chooses to enforce its existing income tax regulations on nonresidents. These include players from visiting teams and players on the home team who don’t reside in the state in which their team is located.
In an analysis for the University of Pittsburgh Law Review, John DiMascio noted the following: “The jock tax sometimes exists as a separate tax law, but is usually ‘just an aggressive extension of an income tax to selected nonresidents'” . The “jock tax” is a relatively new phenomenon. Its allure grew alongside professional athletes’ skyrocketing salaries, particularly in the 1980s and 1990s. In 1991, California lawmakers took up the cause to enforce the tax. Soon after, Illinois followed suit and the dominoes started to fall . (Aside: Michael Jordan supposedly played an indirect role in the sudden movement, because of course he did.)
In most cases, one can simply Google an athlete’s income and travel schedule. If a state can determine how long a nonresident worker stayed and how much that person earned while visiting, levying the state income tax becomes relatively enforceable. For instance, it’s much easier to discover that an NBA player is a) visiting your state, B) staying for X day(s) and c) earned Y dollars than, say, a traveling flight attendant or journalist.
In fact, one can piece together these variables before a season even starts. Such convenience has led to nearly every state with at least one professional sports team to enforce the tax . Teams often withhold a portion of their players’ wages to pay off the taxes in different states, and many players need to file state tax returns to a number of different states. According to DiMascio, many states use a “duty days” formula to determine how much a player earned within their jurisdiction:
“The approach determines the portion of an athlete’s income allocable to the particular taxing jurisdiction by multiplying the athlete’s total income by a ratio of the number of duty days spent within the jurisdiction to the total number of duty days, or all days in which the athlete performs services in satisfaction of a contractual obligation.
The total number of duty days (the denominator in the ratio) is generally defined to include all practice days, game days, and travel days from the beginning of the team’s official preseason training through the last game in which the team competes, including any postseason play. In addition, taxing authorities normally include off-season days in which the athlete has a contractual obligation to perform services, such as camps, instructional leagues, all-star games, team imposed training activities, and promotional events.
The number of duty days spent within a particular jurisdiction (the numerator of the ratio) includes not just game days within that jurisdiction, but also days spent there on which a required practice or meeting was held, as well as travel days that include a game, practice, meeting, or other required service. Travel days that involve no game, practice, or other required service are not apportioned to any particular state, but are included in the total number of duty days.” 
Athletes also earn a lot of money, which makes collecting their prorated nonresident income taxes significantly more worthwhile and attractive. Wisconsin’s individual income tax rates range from 4.00 percent to 7.65 percent, with the highest rate applied to residents whose annual Wisconsin income eclipses $240,190. Nonresidents “prorate the tax based on the ratio of their Wisconsin income to their federal adjusted gross income,” according to the Wisconsin Department of Revenue.
Jay Williams, chair of the Milwaukee Public Museum and co-chair of Milwaukee’s Cultural and Entertainment Capital Needs Task Force, remarked the following to the Milwaukee Business Journal: “Given the NBA salaries, [the ‘jock tax’] is probably on the table as far as ideas we should talk about.”
The “Jock Tax” in Wisconsin
Wisconsin has been collecting the “jock tax” for at least over a decade. The state generated over $11 million in 2001 from such taxes. In 2002, Alex Rodriguez had to pay over $8,000 in Wisconsin income taxes after appearing in the MLB All-Star Game at Miller Park. One estimate concluded that Wisconsin collected upwards of $130,000 total from the visiting All-Stars, according to Thomas Heath and Albert Crenshaw of the Washington Post.
Timothy Sheehy, president of the Metropolitan Milwaukee Association of Commerce and a leading advocate for a new facility, jumped onboard with Walker’s “jock tax” idea. Sheehy told the Milwaukee Business Journal that NBA players are still contributing roughly $10 million per year to the state in income taxes. The revenue could reasonably add up to $100 million in public funding for an arena, according to Sheehy.
Since Wisconsin already collects the “jock tax” from professional athletes, it seems like a harmless step in funding a new arena – provided that the revenue isn’t diverted from a more worthy cause. Yet, “jock taxes” aren’t wholeheartedly embraced.
Bucks point guard Nate Wolters was the anecdotal face of a New York Times article last December that highlighted Tennessee’s controversial “jock tax”:
“When the Milwaukee Bucks traveled to Memphis for a preseason game against the Grizzlies, the Bucks lost by 3 points – and the backup point guard Nate Wolters lost about $1,000. He was not fined, and he did not lose a bet. He fell victim to Tennessee’s so-called jock tax.”
Tennessee’s “jock tax” tax is particularly divisive because it uses a flat tax rate instead of a progressive one. The state doesn’t levy income taxes, which means it can’t generate revenue from a traditional “jock tax.” Instead of using a percentage, the state charges every player $2,500 per game – with the money going to the operation of the Grizzlies’ arena. Tennessee caps the tax per player at $7,500, or three games. Thus, Wolters, who made $500,000 last season, paid the same amount as teammate O.J. Mayo, who made $8 million, on their trips to Memphis. Indeed, as pointed out in the New York Times article, one out of every five players either lost money or didn’t earn anything on a visit to Memphis, per the NBA Players Association.
Tennessee legislatures moved to repeal the state’s “jock tax” in April, though it won’t go into effect for NBA players until after the 2015-2016 season. Republican state Senator Jack Johnson, who sponsored the bill to repeal the tax, said the following to the New York Times: “This tax not only was inequitably applied to players in the NHL and NBA while exempting other professional sports, but it also was an abuse of the state’s taxing authority.”
The complications of the “jock tax”
While Wisconsin’s “jock tax” is fundamentally different from Tennessee’s, criticisms still exist.
For one, enforcement of the state income tax on nonresidents is undoubtedly selective. It would be neither practical nor efficient to track down the brief out-of-state visitations from every guest speaker, flight attendant, professor and so forth. While monitoring professional athletes is relatively easy, applying the same standard and tax to other professionals is often impractical, if not impossible.
Critics question the expediency of the tax, viewing it as an unenforceable tax that’s simply applied to a select profession.
Heath and Crenshaw’s article from 2003 noted that California employed a person to “almost exclusively … track … the comings and goings of professional athletes” and “[pore] over sports publications and online sites analyzing which teams [were] coming from where, which players [were] playing, when they arrive[d] and when they [left].” The employee said, however, that California doesn’t “just pick on athletes” and that “the law is designed for everyone who is doing business” in the state. There are also instances of nonresident income taxes being levied against other professionals, such as musicians and attorneys.
Another concern is double taxation. For instance, Bucks players residing in Milwaukee will pay an income tax on their yearly salary but also be responsible for paying nonresident income taxes on the portions of their salaries earned on road trips, to which players are assigned. However, most states, including Wisconsin, offer tax credits to residents who were charged income taxes from other states, eliminating any threat of double taxation . Players residing in states that have no income tax don’t have the remedy of tax credits and thus pay income taxes for which they usually wouldn’t be responsible.
The biggest headache is likely reserved for the people who file a bevy of tax returns on a player’s behalf — potentially including federal, state and city. Thus, an NBA player could feasibly have to file a return to the federal government, to the state in which he resides, to the state in which his team is located (if it’s not the same as his residence), to the other states he visited on the NBA’s schedule (the ones that collect income taxes and enforce a “jock tax”) and, likewise, to some cities he visited (if they have a “jock tax” of their own). The Washington Post noted that “many professional athletes have tax returns that stretch for hundreds of pages and cost several thousand dollars in accounting fees.”
The formula used to determine how much an athlete earned while visiting a certain state is also murky. Former Green Bay Packers center Jeff Saturday filed a lawsuit against the city of Cleveland last year for issuing him a tax bill of over $3,000 for a game in 2008 that he didn’t attend due to injury. Former Chicago Bears linebacker Hunter Hillenmeyer also filed a lawsuit, arguing that Cleveland charges professional athletes at a higher rate than other visiting workers; Cleveland’s “jock tax” formula factors in the number of games played rather than “duty days.”
In his review of the “jock tax,” DiMascio questioned the very premise of the tax – whether the players are truly benefiting from the resources of the states they’re scheduled to visit. “In reality the athlete’s salary will remain the same if the player for some reason does not travel with the team, if the player does travel but never takes the field due to an injury … or even if not one person purchases a ticket and attends the game,” he wrote. “If this is the case, how can any income be deemed derived from sources within the state?” 
DiMascio further notes that much of the income tax revenue that states are generating from nonresident athletes is potentially negated by the tax credits they’re providing to resident athletes. “Among the states that tax the personal income of residents,” he wrote, “it simply shifts tax revenues from one state to another, due to the grant of tax credits by most states, with the states that tax at high percentages winning at the expense of those that tax at lower percentages.” (For reference, Wisconsin’s maximum individual income tax rate — 7.65 percent — is the 10th highest in the country.)
A final consideration is that the “jock tax” can be extended to more than just the athletes. Any personnel traveling with teams – including trainers, equipment managers, scouts and coaches – may have to deal with the same tax complications, without the same monetary resources.
One can legitimately question the fairness of the “jock tax.” Of course, fairness is in the eye of the beholder. Other public financing options – a sales tax, a TIF district, etc. – are sure to be just as controversial. If financing a new arena in Milwaukee is determined by either implementing an additional sales tax or continuing the nonresident income taxation of professional athletes, it’s a good bet that most citizens will choose the latter.
Fair or not, some people have a family to feed.
 John DiMascio, “The ‘Jock Tax': Fair Play or Unsportsmanlike Conduct,” University of Pittsburgh Law Review 68 (2007): 955.
 Ibid., 958.
 Ibid., 957-8.
 Ibid., 958.
 Ibid., 959-60.
 Ibid., 963.
 Ibid., 970.