In the sports business, athletes become accustomed to paying taxes in nearly every state—and some localities—in which they play. This is commonly referred to as the “jock tax,” because athletes (as well as coaches and trainers) are about the only employees who pay taxes wherever they travel for business.
Usually, these taxes are based upon a percentage of the player’s income earned in the state. Income earned in a state is based on a calculation of the duty day percentage multiplied by the athlete’s income. The numerator of the duty day percentage is usually the number of games played in a jurisdiction and the denominator is the total number of days from the start of training camp until the season ends. For example, if a player earns $1,000,000 in a season which encompasses 200 duty days and plays one road game in a state, his taxable wages in that state are $5,000 [$1,000,000 x (1/200)]. A tax is then levied on that income based on the state or city’s tax laws.
While jock taxes create an abundance of paperwork for athletes and their accountants, most understand that equitable payments to states and cities for road games are part of the business. Then there are states like Tennessee. Being a state with no income tax on wages and facing budget deficits, the legislature in 2009 passed the “Professional Privilege Tax,” which taxes non-resident basketball and hockey (not football) players $2,500 per game played in Tennessee per season, with a maximum tax of $7,500 per tax year (which is June 1 – May 31).
What makes this tax inequitable, drawing the ire of many players, is the fact that it is a flat tax without regard to a player’s income—along with the fact that the tax only hits the NBA and NHL, and leaves the NFL alone.
To illustrate the imbalance of this tax, we will look at two players from the Detroit Red Wings, a division rival of the Nashville Predators. According to USA Today’s NHL salary database, Detroit’s highest-paid player is Henrik Zetterberg, who earns $7,500,000 for the 2011-12 season and their lowest-compensated is Cory Emmerton, who makes the league minimum $525,000. This year’s hockey season, including training camp and without regard to playoffs, comprises of approximately 205 duty days. Because the Red Wings are in the same division as the Predators, they played three games, or 1.46% of their duty days, in Nashville.
Using the duty day calculation mentioned above, Mr. Zetterberg earned $109,756 in Tennessee during the 2011-12 season ($7,500,000 x 1.46%), while Mr. Emmerton earned $7,683 ($525,000 x 1.46%). Yet both paid Tennessee $7,500 for the “privilege” of playing in their state. Mr. Zetterberg’s effective tax rate in Tennessee amounts to 6.83%, while Mr. Emmerton’s is a whopping 97.62%. The only way for Mr. Emmerton to avoid these taxes is to be injured and not traveling with his team to the games in Tennessee.
Due to its disregard of earned income, the Tennessee privilege tax punishes low-earning players for playing in the state.