Professional Athlete Tax Dodging

[smzimbabwe]

I've seen a few stadium proposals where part of the funding relies on the income tax levied against professional athletes, both home and away, to help out.

My question is - can a player structure his contract so that he receives no pay for road games, and receives it only for home games?

For example, Joe Catcher signs with the Seattle Mariners for $810,000. (No state income tax in Washington, and $810,000 makes the math easy). Normally, that would be paid out at the rate of $5000 per game, so for three games in New York, he'd be taxed on $15,000 of income. But if he structured his contract so that it said he would be paid $10,000 for every game in Seattle and nothing for every game on the road, he'd avoid all those road taxes.

So is this a legal maneuver on his part? If so, should I let Scott Boras know? It seems straighforward to me, but I'm sure there are laws out there to close this potential loophole.

[dfwabel]

If you are "Joe Catcher" and actually play in a game which is televised, it is more difficult to say that you did not perform work in a city with an athlete/entertainer tax.

The athlete's representative(s) would have to look at each city/county tax case by case since each law is different. Smaller cities/towns which have a city income tax actually have exclusions for athletes/entertainers if they perform in town for less than "x" days. While it may work and is advantageous to a traditional business traveler, the "jock taxes" specifically apply to athletes.

Case in point: Athens, OH

If I live outside the Athens City limits, am I subject to the Athens City income tax?

Yes. If you work within the Athens City limits. Work consists of any business activity performed as an employee, self-employed contractor or subcontractor, and/or an owner of rental property. Compensation paid to non-resident sole individuals for services performed inside the City of Athens, on twelve or fewer days in a calendar year, is not taxable. This 12-day occasional entry provision does not apply to a professional entertainer, a professional athlete, a promoter of or an employee of, a professional entertainer or professional athlete, or to an individual who is an employee and his/her employer is located in another municipality, and the individual is not liable for tax to the other municipality.

In 2009, the L.A. Times published a story about athletes and taxes, specifically MLB players.

From the story:

Athletes are taxed based on "duty days" they spend in each state. In baseball, there are approximately 181 "duty days," meaning a player earning $1.81 million would make $10,000 each duty day. Therefore, if that player's team had three games in California, he would be responsible for taxes on $30,000 of income.

At that point, all the tax collectors have left is a math problem to figure out that Ichiro Suzuki, the highest-paid baseball player in Washington, a tax-free state, will have to pay more than $218,000 in California taxes for the 25 games the Mariners will play there this summer.

The salaries and schedules for lawyers, bankers, entertainers and other professionals who might be subject to nonresident taxes aren't as accessible. But that hasn't stopped some states from trying to reel in CEOs and other well-paid executives by auditing corporations for their travel records, tax professionals say.

Touring entertainers such as singers or comedians often have taxes withheld by either the promoter or the venue. But collecting from film crews can be trickier since shooting schedules aren't publicized and are frequently changed and actors aren't on the set every day.

Then there are the tax credits players receive if they're required to pay taxes to two or more states for the same game -- for example: their state of residence, the state where their team is based and the state where the game was played.

"In many cases it's a wash. You don't end up paying all that much more," says William Ahern, communications director for the Tax Foundation. "But you just file a lot more paperwork."

[Kevin W.]

You have to bet that loophole would be closed pretty damn quickly by Congress if someone tried it. That's a lot of tax revenue that would go down the drain.

[dfwabel]

You have to bet that loophole would be closed pretty damn quickly by Congress if someone tried it. That's a lot of tax revenue that would go down the drain.

It is not a federal issue. Both US and Canada already receive their taxes via income ta and in the USA payroll taxes.

[dfwabel]

FYI, a law firm weighed in on the typical athlete-tax related topics.

While I realize that this board is getting younger by the poster, as someone who has had a year of filing four state tax returns (none for the state of my permanent residency), we all get hit with state/city/county tax, we are just not on TV all the time.

[Gothamite]

Agreed.

This issue isn't just in pro sports, it happens a lot. People who live in Hoboken and work in New York City have to pay New York tax. Which, in my experience, applies to most people who live in Hoboken.

I had a small part in a television movie filmed in South Carolina. I still see residuals from that film, which means I need to file South Carolina taxes, although I get a credit because those are offset by my local New York tax.

Same applies to expatriates. A United States citizen who lives and works in France and never sets foot in the States still has to file a US return and pay the US rate on that income. Now, it's likely that he or she would have already paid more than that in French taxes, so they'd get a credit and not actually have to send Uncle Sam a check.

To address your original question, it doesn't matter what a contract says - if the player works at his job for any amount of time in a given state, he's responsible for paying income taxes to that state. Only way of getting around it would be to structure his contract for a higher dollar value so that in effect the team is paying those taxes, reimbursing him with a higher base salary.