The Jock-Tax Man

More than a dozen states collect taxes from athletes who earn income there as part of their competitive schedule. More than a dozen states collect taxes from athletes who earn income there as part of their competitive schedule. Credit Illustration by Matthew Hollister

States began levying income taxes aimed specifically at professional athletes as early as the nineteen-sixties, but it wasn’t until 1991 that these so-called “jock taxes” began to be enforced with vigor. That year, when the Los Angeles Lakers lost the N.B.A. finals to the Chicago Bulls, California moved to collect tax against the income Michael Jordan and his teammates earned while playing in the state. Infuriated Illinois lawmakers in turn passed their own tax laws that specifically targeted visiting athletes, including the Lakers. The Illinois countermove became known as “Michael Jordan’s revenge.”

Since then, more than a dozen states, including Arizona, Colorado, Indiana, Louisiana, Maryland, Massachusetts, Ohio, and Pennsylvania, have enacted regulations to collect taxes from athletes who earn income there as part of their competitive schedule. Some municipalities, including Cleveland, Cincinnati, Kansas City, Pittsburgh and St. Louis, have added them, as well.

While some say that the taxes are a small price for a handful of wealthy athletes to pay, others have criticized the motives behind them. Often the funds go into general state coffers, but in a handful of states, such as Tennessee, jock-tax revenue may support the venues where athletes play. Lawmakers and arena owners sometimes tout jock taxes as a way to publicly finance a new arena without passing the cost to constituents. In January, for example, Wisconsin Governor Scott Walker announced a proposal to impose a tax on N.B.A. players to cover debt payments on two hundred and twenty million dollars for such a project. It’s led to some cries of taxation without (local) representation.

“It’s going to be hard to find a lawmaker that has sympathy for a few thousand or so people who make a lot of money and don’t carry votes,” Jonathan Nehring, a tax lawyer and blogger who writes about sports-related taxes at TaxaBall.com, said.

When athletes want their interests represented, they turn to people like Mark Goldstick, a certified public accountant based in Chicago. Goldstick was working as an accountant, mostly with high-net-worth clients, when, in 1985, one of his fraternity brothers from college started a sports agency, Priority Sports and Entertainment. The company began to include tax services as part of its offerings and, in 1998, Goldstick’s friend gave him eight athletes’ tax returns. Within three years, that number had grown to sixty. Goldstick, who is now the C.F.O. of Priority, estimates that this spring he will complete thirty-four tax returns for past or present N.F.L. players, twenty-seven for N.B.A. athletes, and thirteen for professional basketball players overseas, among others.

Goldstick’s goal, he says, is to keep his clients’ names on the sports page and off the front page. He has reams of paperwork, organized by state, in order to stay current on the tangle of local laws concerning athletes’ incomes. Increasingly, Goldstick finds himself involved in conversations with players over the tax consequences of being a free agent or the nuances of a particular trade. (He is quick to extoll the income-tax-free virtues of being on the roster of the Jacksonville Jaguars.) And if players go overseas, there are also foreign tax treaties to keep track of.

The tax code is not immune to athletes’ competitive drive. One of Goldstick’s clients, the offensive tackle Tony Pashos, recounted comparing notes with other players in the locker room: “You’d hear stories about ‘my accountant let me write this off or that off,’ ” he said. “I’d go tell Mark and he’d say you could push it, but why risk it?”

Pashos does not write off the suits he wears on planes to games, for example, nor would he deduct more than a modest portion of the cost of a home theatre, even if he uses it to watch game film. Costs associated with off-season training, such as hotels and yoga or Pilates classes, are generally kosher; luxury cars are not. Goldstick says he has successfully argued that up to forty per cent of the cost of client’s hot tub was permissible as a deduction, and he was able to deduct cost of hyperbaric chambers for two clients, since they were used to help endurance and healing ability. Goldstick has also successfully argued that the fines his clients pay to leagues as penalties for their behavior on and off the field are tax deductible as an ordinary business expense.

Thanks to their high profiles and their large incomes earned across multiple states, athletes are popular targets for tax officials, Goldstick told me. Some larger states, like California, have employees in their revenue departments who are entirely devoted to parsing athletes’ tax returns. (A spokesperson for California said that there used to be an employee who handled all the tax returns for athletes visiting from out of state, but now the out-of-state returns are spread among officials.)

Kevin Mawae, a retired center who played for the New York Jets, is a client of Goldstick’s. During his 2000 season, Mawae and his wife, Tracy, who was pregnant with their second child, decided to make Louisiana their home state, to be closer to family. Mawae travelled to New York to play for his team, which is technically located in New Jersey. During the season, he earned roughly five millions dollars in nearly a dozen different states. Then came New York State tax officials came to audit him, and Mawae soon found himself in a maze of airline tickets, American Express statements, gas-station receipts, and other paperwork to prove that he had met the requirements for having lived in Louisiana and hadn’t passed the hundred-and-eighty-three-day minimum for being a New York resident. “I couldn’t imagine walking in to an H. & R. Block or a Walmart and just asking someone there to do my taxes,” Mawae said.

Jock taxes have grown only more complicated since “Michael Jordan’s revenge.” Lately, tax experts have had their eyes on two cases in Ohio. In January, the state’s Supreme Court heard arguments over whether the city of Cleveland had unconstitutionally charged municipal income tax to two former N.F.L. players. In the pair of lawsuits filed by the former Chicago Bears linebacker Hunter Hillenmeyer and the former Indianapolis Colts center Jeff Saturday, the athletes claimed that they were wrongfully charged a two-per-cent income tax for games they played at Browns Stadium. (Under standard Ohio law, local governments cannot charge visiting workers municipal income tax unless they are there for more than twelve days in a year.) Saturday didn’t even play in the game in question, because of an injury. Lawyers and accountants say that the Ohio cases, which are still awaiting verdicts, may provide a model for how other states and municipalities tax professional athletes in the future.

As for Goldstick, he said that while many of his 2014 returns are completed, he’ll be filing extensions on behalf of most of his clients. “It’s going to be a long season.”