Athletes take hits in taxes after game

By Mark Alesia
Updated: October 19, 2008

INDIANAPOLIS — Baltimore Ravens quarterback Joe Flacco was sacked four times Oct. 12 in the Indianapolis Colts’ victory at Lucas Oil Stadium, but the final hits have yet to come. They will be delivered by the state of Indiana.

Like all visiting players, the Ravens must pay what’s known as the “jock tax.” For their two “duty days” of earning income in Indiana — meetings, practice and game day — the Ravens players owe the state a total of about $49,000, judging by public reports of the team’s payroll. Flacco’s exact share is hard to determine, but it’s about $2,000.

It’s the same for Colts players when they go on the road to play 24 of the other 31 NFL teams, those in states with an income tax. And it’s the same for the Pacers, the Fever and all other pro teams based here.

The Indiana Department of Revenue doesn’t have figures on how much visiting professional athletes pay in income tax. But an estimate by The Indianapolis Star, based on team payrolls and reviewed by the Colts and sports tax experts, put the share paid by outside NFL players at about $492,000 in 2007.

Estimating the NBA is far more complicated for several reasons: the season spanning much of two calendar years; the Canadian team in the mix; the multi-game road trips; and the more fluid player movement. Still, the system works the same, with states collecting from out-of-state players.

It’s not pure profit, however. Indiana gives tax credits to state-based athletes for jock taxes they pay in other states. Colts players were credited for about $360,000 in out-of-state jock taxes in 2007, based on a Star estimate.

For many athletes, the credit makes it “mostly just a wash,” said Bill Ahern, spokesman for The Tax Foundation, a nonpartisan tax research and education group in Washington. Plus, relatively speaking, athletes aren’t taxed much in any particular state they visit.

The Colts wouldn’t say how many “duty days” make up an NFL season, but Dan Luther, a Chicago-based attorney for the team, said it’s about 160. So the taxable amount of a player’s salary for a road trip to a state with income tax would be about 1.25 percent — two duty days out of 160.

Still, explaining to young athletes why they’re being taxed in several states (as well as in some municipalities, which tax separately), can be, well, taxing.

“You’re the messenger who doesn’t want to get shot,” said Mark Richards, an Ice Miller tax attorney in Indianapolis.

Some states with major professional teams don’t have a state income tax. That group includes Texas, Florida and Tennessee.

“A $3 million contract in Texas is worth a nice chunk more than a $3 million contract in California,” said Victor Barbo, head of the Pro Sports Tax division of Sink, Gillmore & Gordon.

But when those players from Texas play in a state that has an income tax, they pay. Barbo added that athletes from states with relatively low taxes such as Indiana pay a small premium when they go on the road.

That’s because they’re credited only up to their home state’s tax rate. Players pay the difference up to the other state’s tax rate. The Tax Foundation, meanwhile, is concerned with “how far down on the income scale states will go.”

“We got a call from the mother of a (Major League Soccer) player who makes $28,000,” Ahern said. “She’s sitting at the kitchen table with 10 state tax forms. It’s out there at all levels now that the machinery is in place.”

The jock tax is thought to have begun in California in the 1980s, with authorities quietly collecting from athletes, whose salaries had exploded. Illinois instituted its jock tax in 1992 after legislators learned that Michael Jordan and the Chicago Bulls were being taxed by California the previous year while winning the NBA Finals against the Los Angeles Lakers. Other states followed. Indiana added language specific to athletes in its tax code in 1997.

Technically, the tax applies to anyone earning income in another state. But in reality the states focus on sports teams and entertainers, who make a lot of money and whose schedules are easy for authorities to monitor.

Taxing authorities watch professional athletes closely because they “want to spend time in efficient ways and that means going after people who make a lot of money,” Richards said.

It’s not just the athletes. Like other states, Indiana also collects from visiting coaches and “individuals required to travel.” For NFL players, Luther said, that basically means anyone on the sideline, including trainers, coaches in the press box and video personnel.

Indiana tax law addresses specifically “team members” in professional baseball, basketball, football, hockey and soccer. There is no language addressing, for example, visiting college coaches, who often have seven-figure salaries.

The Colts declined to reveal the total amount the team paid through the jock tax last season. Like other teams, they withhold the taxes from paychecks and send the money to the other states. The team has to make sure it knows who traveled and who was active as opposed to injured.

Luther said different state laws and procedures make it tedious.

“It’s a vigorous requirement that includes making payment in pretty short order after the game,” Luther said. “We’re an organization in Indiana trying to comply with tax laws in Arizona and California, where we play one game every four years and we have to figure out what is expected of us. There are a lot of traps for the unwary.”