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The taxing life of a pro athlete

It's one of life's certainties: Athletes have to pay for income earned on the road.

April 12, 2009|Kevin Baxter

For eight of his first nine major league seasons, Angels pitcher Darren Oliver worked in Texas, where the stars at night are big and bright and, more important, there's no state income tax.

Yet, each April, he pays a small army of accountants to file more than a hundred pages of returns -- and sometimes checks -- to as many as a dozen states and one province in Canada, covering taxes on income he earned on the road.

"The book's like this big," Oliver, holding his thumb and index finger a couple of inches apart, says of the tax documents he filed this year.

If opening day is the best day of the year for professional athletes, then April 15 -- tax day -- is probably the worst. Especially now that 20 of the 24 states with franchises in at least one of the four major pro leagues -- the NFL, NBA, NHL and Major League Baseball -- have laws that require visiting athletes to pay state income tax for each game they play there.

Considering that top-level athletes in football, basketball, hockey and baseball now make an annual average salary of $2.9 million, that means big bucks for states such as California. Home to 15 major professional teams, the state raked in $102 million in taxes from visiting athletes in 2006-07, the last year for which records are available.

As salaries have skyrocketed, the so-called "jock tax" has become widespread and controversial. Its imposition has raised questions of fairness and, for tax expert Joseph Henchman, has laid waste to the once-revolutionary prohibition on taxation without representation.

"Politicians are seeking to shift tax burdens to people that don't vote," he says. "It does create a rather disturbing trend because it essentially allows politicians to provide more government services than [citizens] are willing to pay for."

Oliver, who still resides in Texas during the off-season, is one of few pro athletes willing to speak publicly about the subject, with most who decline saying they're wary of making their lucrative contracts sound like a burden.

"Nothing surprises me that the government does to try to get some money," says Oliver, who will make $3.665 million this summer. " . . . The common person, they're not going to feel sorry for us. And if I was that person, I would be saying the exact thing. I can see both sides of it."

In the tax world, it's no secret that athletes are treated differently from other highly paid workers -- investment bankers and corporate lawyers, for example -- who also work in multiple states. The jock tax, critics say, is poorly targeted, arbitrarily enforced and unrealistically burdensome -- and also completely understandable given the current economic climate.

"No, it's probably not fair," says Ralph Espinosa, a Miami-based accountant who has done tax work for several NFL and major league players. "But they make more money than most of us. Their information is easily accessible online. Most people know their salaries [and] they can go in and see their schedules."

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.

"States are focusing their resources on where they can get the money," says Henchman, tax counsel and director of state projects for the Tax Foundation, an educational group based in Washington D.C.

The advent of the jock tax is commonly traced to the 1991 NBA Finals in which the Chicago Bulls beat the Lakers, then received tax bills from California for the three games played in Los Angeles. However, nonresident tax laws have been on the books in the state since the 1950s.

"A lot of this became kind of an issue in the '80s as athletes' salaries were rising," says Denise Azimi, spokeswoman for the California Franchise Tax Board. "Athletes weren't always that well paid. So there wasn't that much of an impact."

There is now, though -- along with plenty of compliance nightmares.

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