On April 30th, 2015, a long awaited ruling from the Ohio Supreme Court struck down Cleveland’s unique method of taxing out-of-town professional athletes, but upheld their ability to still apply a “jock tax.” The ruling could save visiting professional athletes several thousand dollars and cost the city as much as $1 million per year according to some conservative estimates. The issues at stake were twofold: first was that any “jock tax” was unconstitutional, and second was the manner in which the city calculated the tax.
Former Bears linebacker, Hunter Hillenmeyer, and ex-Indianapolis Colts center, Jeff Saturday, filed two separate lawsuits challenging: 1) the ability to apply a tax altogether and 2) the method the city used to apportion taxable wages.
Under Ohio law, local governments can’t charge most visiting workers municipal income tax unless they work for more than 12 days a year in the city. However, the law excludes visiting pro athletes and entertainers from that ban – hence the term “jock tax.”
Cleveland is also unique in that it imposes an income tax based on a “games played “method; taxable wages are calculated by the number of games worked in the city (numerator) out of the total games played (denominator). The remaining Ohio cities that have a jock tax use what is known as the “duty days” method. Under the duty days method consideration is given to the number of total days worked in the year which includes among other things, mini-camps, practices and pre-season. A typical NFL player only plays in about 16 games but may average around 160 duty days in any given year.
The court ruled that: “the games played method reaches income that was performed outside of Cleveland, and thus Cleveland’s income tax as applied is extraterritorial.” However, the Court rejected the players’ argument that the city’s jock tax should be abolished altogether (I can almost hear the collective sigh of relief coming from Cincinnati and Columbus).
At this point it is not clear if the law will be applied retro-active to all open tax years but we will be filing protective refund claims for all of our professional athlete clients. To learn more about this issue or many others affecting professional athletes, contact Scott Cress here.