April 30, 2012 The Tax Lawyer

Heads Up! Recent Federal and State Attempts to Address Nonresident Income Taxation Perpetuate Selective Enforcement and Unfairness of the “Jock Tax”

Vol. 64, No. 4 - Summer 2011

Steven Pahuskin

Abstract

    On July 8, 2010, NBA star LeBron James, formerly of the Cleveland Cavaliers, insulted the State of Ohio, the City of Cleveland, and its residents on national television by announcing that he was “tak[ing] [his] talents to South Beach.” On December 2, 2010, the Cavaliers did not get their revenge as they lost to James and the Miami Heat in a game of basketball. However, the government received some retribution when it assessed state taxes on James for the income he earned while playing the game in . The tax hit was likely especially sore for James because his new state of residence, , did not impose state income taxes on its residents.

    States have assessed income taxes on athletes who neither reside in their territory nor play for their state’s sports teams since the early 1990s. This selective enforcement of state income taxation on athletes has been labeled the “jock tax.” More recently, states have expanded these nonresident state income taxes to a broader base, including highly paid executives, lawyers, and doctors. In response, Congress has proposed numerous bills, the latest being The Mobile Workforce State Income Tax Simplification Act of 2011, to limit the filing requirements of certain nonresident state income taxpayers. If passed, the bill would mandate that a nonresident taxpayer spend 30 days within a state before being required to file a state income tax return. But, the bill expressly excludes athletes from its scope. Additionally, the Multistate Tax Commission (MTC) has introduced a Model Mobile Workforce Statute, which states may adopt, that would provide a de minimis threshold of 20 days before a nonresiding taxpayer is required to file tax returns in a state. Again, athletes are expressly excluded from the scope of the model statute.

    This Comment will examine recurring issues surrounding the jock tax, including selective enforcement, unfairness, and administrative complexity. This Comment will demonstrate that the laws introduced in Congress and the MTC, aimed to limit the usage of nonresident state income taxation, perpetuate the selective enforcement and unfairness of the jock tax. This Comment will conclude that abolition of the jock tax is necessary to solve its current problems and historical administrative complexities. Part II discusses the derivation of state authority to collect the jock tax and past issues with the jock tax, including selective enforcement, unfairness, and administrative complexity. Part III examines current jock tax issues, including double taxation and the disadvantage to states that do not impose income tax on individual taxpayers or individuals. Part IV analyzes state and federal attempts to selectively assuage the expanding enforcement of nonresident state income taxation and provides a detailed analysis of Congress’s and the MTC’s latest attempts to address the expansion problem. Part V considers an alternative to current legislation that is arguably better aligned with notions of sound tax and legal policies.

Read the full article or download the complete issue.