Ohio Supreme Court says Cleveland's 'jock tax' formula is unconstitutional
Should NFL players pay income taxes to the cities and states that host their road games? If you believe the answer to this question is “yes,” should other professionals be subject to the same treatment when they work out-of-state? How about accountants, consultants, executives, attorneys, physicians and journalists? Normally they are not required to pay income taxes to the states and cities they visit on short-term assignment. Yet in an increasing number of states, NFL players and other pro athletes are subjected to what some consider extra taxation.
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Fair or not, it makes sense for cities and states to target visiting NFL players. Their money can be used to improve schools and fund government services. Most NFL players are paid handsomely—the average player makes nearly $2 million per year—which means substantial revenue can be generated by taxing their pay. NFL players’ physical presence in a state is also extremely easy to prove: all it takes is proof they played in an NFL game or were on the sidelines. These players, moreover, are not political threats to lawmakers who advocate jock taxes: they play on rival teams and normally live in other states. Cities and states can also rationalize taxing visiting NFL players because their visits tend to compel higher government spending than when non-celebrities visit. After all, NFL games require police and other public safety needs that are not necessary when, say, physicians attend conferences or journalists report on stories.
Of the 26 states with professional sports teams, 22 have adopted a jock tax of some sort or another. Eight cities have instituted their own jock taxes.
Potentially standing in the way of some applications of the jock tax is the law. Two former NFL players, Jeff Saturday and Hunter Hillenmeyer, recently went to court to challenge Cleveland’s jock tax. For years, Cleveland has levied a 2% tax on a visiting player’s income that the city considers taxable. This “income,” in the city’s view, is normally 1/20th of a player’s annual salary if his team doesn’t make the playoffs. The logic: the player plays one road game in Cleveland, and 19 other games (15 regular season games and four preseason games) in other cities. The math changes if the player’s team makes the playoffs—especially if the player’s playoff game is in Cleveland—but the basic idea remains the same: a 2% tax is levied on the proportion of income attributed to playing a road game in Cleveland versus playing games in other cities. This is referred to as the “games-played” method.
Hillenmeyer argued that Cleveland’s arrangement was unlawful. He stressed his NFL salary reflected more than just playing in games. It also included practices, working out and team meetings, which are reflected in the more commonly used “duty-days” method. In Hillenmeyer’s view, the portion of his income attributable to playing one road game in Cleveland was far less. Hillenmeyer also emphasized that Cleveland has an occasional entry provision that offers other types of visiting professionals a “grace period,” whereby they are not taxed unless they spend more than 12 days working in Cleveland. Visiting NFL players, in contrast, have been forced to pay a tax to Cleveland despite spending only two or three days in Cleveland.
Last week the Ohio Supreme Court held that while Cleveland can impose a jock tax, it needs to rework its formula. Significantly, the court held that it is not a violation of equal protection under the U.S. Constitution for a city to tax visiting NFL players but not tax other visiting professionals. The reasoning was straightforward. Equal protection claims brought by groups who contend that the government’s treatment of them is especially harsh normally only succeed when they are members of a so-called “protected class.” This usually means their race, gender, ethnicity or other demographic category warrants specific legal protection due to discrimination. NFL players are not in that category. They come from different races, ethnicities and backgrounds and their demographic traits are irrelevant to their employment in the NFL. All Cleveland had to establish was a rational relationship between treating visiting NFL players differently and a legitimate governmental purpose. The city did so by highlighting how the tax dollars are used to provide government services and by stressing that crowds associated with visiting NFL players necessitate additional government spending.
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The court, however, found that Cleveland’s method of imposing the jock tax violated a different area of constitutional law: due process, which prevents Cleveland from depriving visiting NFL players “life, liberty or property without due process of law.” Here, Hillenmeyer proved that Cleveland’s method of taxing him for games played constituted over-taxation. The city, the court stressed, wrongly failed to consider that Hillenmeyer’s “employment” as an NFL player includes practices, team meetings, working out and other duties not captured by games played. Cleveland has filed a motion for the court to reconsider the issue. Absent a successful appeal, Cleveland will have to revise its jock tax or it will be unconstitutional. In addition athletes would be wise to talk to their financial professional about revisiting their tax returns from the past three years. They may be able to recoup some of the money paid to Cleveland.
The lesson for cities and states considering the jock tax: you can adopt one, but make sure the formula isn’t designed to unfairly punish visiting players.
Michael McCann is a Massachusetts attorney and the founding director of the Sports and Entertainment Law Institute at the University of New Hampshire School of Law. He is also the distinguished visiting Hall of Fame Professor of Law at Mississippi College School of Law.
Robert Raiola is a senior manager in the Sports & Entertainment Group of the accounting firm O'Connor Davies, LLP.
