THE PENNSYLVANIA STATE UNIVERSITY

SCHREYER HONORS COLLEGE

DEPARTMENT OF ACCOUNTING

THE “JOCK TAX”: PLAYERS ALWAYS LOSE IN AN UNFAIR GAME

JUSTIN W. TAYLOR

FALL 2012

A thesis submitted in partial fulfillment of the requirements for a baccalaureate degree in Accounting with honors in Accounting

Reviewed and approved* by the following:

Rick Laux Assistant Professor of Accounting Thesis Supervisor

Orie Barron Professor of Accounting Honors Adviser

* Signatures are on file in the Schreyer Honors College

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ABSTRACT

Modern professional athletes are some of the most recognizable and well-paid

members of society in the United States. While their biggest fans are the devoted

followers that fund the growing professional sports industry, tax administrators from

states and cities across the country are also watching their every move. Since the early

1990s, collectors at the state and local level have enforced the “jock tax,” an individual

income tax specifically targeting visiting professional athletes. Experts consider the

policy to be both inefficient and discriminatory in nature, as it targets athletes based

solely on their profession and increases the compliance burden for all affected parties.

Still, taxing authorities have found that the additional revenue raised outweighs the cost

of enforcement, and there are no signs that any change in policy is imminent.

This thesis studies the hypothetical effects of the “jock tax” on NFL personnel

during the 2012 season. It seeks to determine how much excess income tax team

employees will incur and whether these amounts provide further evidence that the tax is

poor policy. In addition, the paper will analyze which teams are the most and least

beneficial for athletes to play for from a tax perspective. Lastly, this thesis will test the

assertion that fans, media, and perhaps even team members themselves have an incorrect

understanding of how taxes should affect the employment decisions of professional

sports team personnel.

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TABLE OF CONTENTS

List of Figures ……………………………………………………………………………………………………………………………………….. iv Acknowledgements ……………………………………………………………………………………………………………………………….. v Chapter 1: Introduction ...... 1 Chapter 2: History of the “Jock Tax” ...... 4 Chapter 3: Application of the “Jock Tax” ...... 7 Key Terms ...... 7 Calculation ...... 8 Enforcement ...... 14 Chapter 4: Previous Research ...... 14 Chapter 5: Development of Hypotheses ...... 15 Chapter 6: Hypotheses ...... 17 Chapter 7: Design of Model ...... 18 Assumptions ...... 19 Chapter 8: Results ...... 22 Chapter 9: Conclusions ...... 30 Hypotheses Revisited ...... 30 Related Topics ...... 36 Effect on NFL Teams...... 36 Effect on Other Leagues ...... 37 Effect on Other States ...... 38 Chapter 10: Conclusion ...... 40 Appendix A: Arizona Cardinals ...... 43 Appendix B: Atlanta Falcons ...... 44 Appendix C: Baltimore Ravens ...... 45 Appendix D: Buffalo Bills ...... 46 Appendix E: Carolina Panthers ...... 47 Appendix F: Chicago Bears ...... 48 Appendix G: Cincinnati Bengals ...... 49 Appendix H: Cleveland Browns ...... 50 Appendix I: Dallas Cowboys ...... 51 Appendix J: Denver Broncos ...... 52 Appendix K: Detroit Lions ...... 53 Appendix L: Green Bay Packers...... 54 Appendix M: Houston Texans ...... 55 Appendix N: Indianapolis Colts ...... 56 Appendix O: Jacksonville Jaguars ...... 57 Appendix P: Kansas City Chiefs ...... 58 Appendix Q: Miami Dolphins ...... 59 Appendix R: Minnesota Vikings ...... 60 Appendix S: New England Patriots ...... 61 Appendix T: New Orleans Saints ...... 62 Appendix U: New York Giants ...... 63 Appendix V: New York Jets ...... 64 Appendix W: Oakland Raiders ...... 65 Appendix X: Philadelphia Eagles ...... 66 Appendix Y: Pittsburgh Steelers ...... 67 iii

Appendix Z: St. Louis Rams ...... 68 Appendix AA: San Diego Chargers ...... 69 Appendix BB: San Francisco 49ers ...... 70 Appendix CC: Seattle Seahawks ...... 71 Appendix DD: Tampa Bay Buccaneers ...... 72 Appendix EE: Tennessee Titans...... 73 Appendix FF: Washington Redskins ...... 74 Bibliography ...... 75

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LIST OF FIGURES

Figure 1: Non‐Resident with Same Rates, No ETR Effect (Tennessee @ Seattle) ...... 10 Figure 2: Non‐Resident with Different Rates, No Effect (Minnesota @ Indianapolis) ...... 11 Figure 3: Non‐Resident with Different Rates, Higher ETR (San Diego @ St. Louis) ...... 12 Figure 4: Change in ETR at $390,000 (Rookie Minimum) Salary ...... 25 Figure 5: Change in ETR at $770,000 (Median) Salary ...... 26 Figure 6: Change in ETR at $18,000,000 (Highest 2012 Base) Salary ...... 27

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ACKNOWLEDGEMENTS

This thesis could not have been completed without the support of my friends and family

and the guidance of my advisors.

I would like to specifically recognize my parents for being my biggest supporters and always encouraging me to pursue my interests.

I also want to sincerely thank my thesis advisors, Professor Rick Laux and Dr. Orie

Barron, for their guidance throughout the research and writing process. I am especially grateful for Professor Laux’s insight, patience, and commitment to this paper.

Lastly, I would like to thank LeBron James and Cliff Lee. Without their heavily publicized and scrutinized free agency decisions, I might never have been exposed to “jock tax”

and had the pleasure of studying its effects.

Without all of you, this would not have been possible.

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Chapter 1: Introduction

Professional sports are an integral part of American culture. There is no better

evidence for this claim than the size of the industry itself, which includes about 1,500

organizations with combined annual revenue of about $20 billion (Professional Sports

Teams & Organizations). The industry’s revenues are generated from various sources

such as gate receipts, television contracts, and merchandise and concession sales.

Growth in each of these segments is driven in some form by the passionate support that

fans demonstrate for their professional sports teams.

Often included in this support is a fan’s desire to know virtually everything about

his or her favorite team and players. This ever-expanding obsession for sports news,

highlights and information can be traced to the success of television network ESPN, the

first ever 24/7 sports network (Alumni). Today, more than ever, fans can express their

opinions regarding sports through a variety of mediums such as online blogs and social

media. 83 percent of fans even check sports social media websites while watching a game on TV (Game Change: Social Media in the Sports World, 2012). Needless to say, fans are eager to express their opinions on relevant sports topics to anyone who will

listen.

Income taxes, conversely, are discussed much less frequently by the general

public in the United States. With the exception of the annual “4/15” deadline, income

taxes are not often the subject of daily conversations or online forums. State and local

income taxes are even less popular issues than federal income taxes, as they are not 2 typically addressed during presidential campaigns. Yet, through a unique intersection

with the seemingly unrelated world of professional sports, sports and state and local

income taxes recently shared a headline together when the “jock tax” was re-introduced

to the public forum.

The “jock tax” is a colloquial expression referring to the trend among tax

authorities toward levying state and local income taxes on traveling business

professionals, particularly visiting professional athletes (Jock Taxes). Perhaps the only

force capable of popularizing this topic was LeBron James, a professional basketball

player and one of the most polarizing athletes of all-time (The Most Polarizing Athletes

Of All Time, 2012).

In 2010, James became eligible to sign a contract with any team and was courted

by several professional basketball teams in the National Basketball Association (NBA).

James—the league’s reigning most valuable player—announced his intent to sign with

the Miami Heat on a live special that ESPN called “The Decision.” (James picks Heat;

Cavs owner erupts, 2010) The concept of televising an individual choosing a place of

employment was unprecedented and illustrated James’s extraordinary fame. Fittingly, the speculation among fans and media leading up to “The Decision” was equally as extreme. Every imaginable aspect of James’s prospective choices was critically dissected, including the weather, James’s ego, and, that’s right, state and local income tax implications (Greenberg, 2010). While James maintained that his selection was based on winning championships, some speculated that taxes might have been the primary 3 motivator behind his move from Cleveland to Miami, where there is no state or local

income tax (Erb, 2010).

For the most part, sports commentators and journalists analyzed the tax effect of

James playing for the Heat by taking into account James’s tax liability from games

played outside the state of Florida. However, the common sports fan or prospective

professional athlete learning about the “jock tax” through James’s example likely came

away with two misconceptions.

First, James is atypical because he is paid more to endorse products than he is to

play basketball (Manfred, 2012). As a result, James’s decision likely was based heavily

on potential state and local tax savings, but not because of the effects of the “jock tax,” as

endorsements are not subject to taxation from nonresident taxing authorities. For most

professional athletes though, this policy is important, because player salaries—their primary source of income—are subject to the “jock tax.”

The second and more important misconception that the media portrayed in

James’s case was that professional athletes should favor the locations with the lowest tax rates when choosing between teams. While this logic is intuitive, the enforcement of the

“jock tax” and other factors make it flawed. In fact, I will argue that the exact opposite is true. Rather than using statutory rates to judge the tax friendliness of a specific team, professional athletes should observe the change in effective tax rate triggered by the

“jock tax.” 4 To test this claim, I created hypothetical tax scenarios for team members from each of the 32 National Football League (NFL) teams in 2012. Applying the 2012 NFL schedule and the applicable state and local 2012 tax rates, I calculated the additional liability and change in effective tax rate incurred by professional football players as a result of the “jock tax.” As expected, my analysis found that working for teams in states with higher individual income tax rates proves to be most beneficial for athletes when considering state and local income taxes. Meanwhile, states with lower tax rates or none at all—such as Florida—were shown to be the least advantageous.

To understand why this is true, it is important to study how the “jock tax” policy originated, how it is implemented and who it affects. Interestingly, the story of the “jock tax” begins with the very athlete LeBron James is often compared to—Michael Jordan.

Chapter 2: History of the “Jock Tax”

In the 1980s and early 1990s, salaries of professional athletes had risen to amounts that caught the attention of more than just avid sports fans. State tax administrators also took notice, and given the growing fiscal pressures at the time, they recognized that these players provided a potentially golden opportunity to expand their pool of taxable income (Ekmekjian, Wilkerson, & Bing, 2004). Such enforcement had been imposed on entertainers and musicians for years, but the administrative burden associated with taxing visiting athletes had always outweighed the benefit of additional revenue in the minds of the collectors (DiMascio, 2007). The simultaneous occurrence of 5 rapidly increasing player salaries and challenging budget deficits proved to be the circumstances necessary to make a change.

In 1991, the state of California estimated that if tax officials imposed income taxes on out-of-state athletes, an estimated two to three million dollars could be collected

(DiMascio, 2007).. Unable to ignore these figures, California became the first state to actively impose a “jock tax” when the state’s legislature voted to actively levy its state income tax on players of visiting teams in 1991. And so it went, that after Michael

Jordan—one of the league’s top paid players at the time—and the Chicago Bulls defeated the Los Angeles Lakers in the 1991 NBA Finals, Jordan received a tax bill for the days spent working in the state of California (Bender).

In retaliation, Illinois countered the following year with a bill of its own informally dubbed “Michael Jordan’s Revenge” (Sheer, 2012). In effect, it chose to reciprocate the policy of imposing an income tax on nonresident athletes for income earned while in Illinois. Perhaps more importantly, though, it triggered a chain reaction in which all states that hosted professional sports teams enacted similar policies. In addition to the states which host these teams, some individual cities have taken the same approach and chosen to tax nonresident athletes playing in their jurisdictions (DiMascio,

2007).

Athletes have had few means to defend themselves against this imposition. For one, they are high-profile individuals and schedules of professional sports teams are publicly available information. As such, tax administrators can easily pinpoint which jurisdictions athletes worked in on given days. In addition, players had no way of voicing 6 their opinions through the political process, as they are not eligible to vote in the very states that are taxing them (DiMascio, 2007). Lastly, courts have ruled that the “jock tax” does not violate any previously existing laws. The Supreme Court ruled that the Due

Process Clause does not forbid the type of double taxation that exists when states assess taxes on nonresident athletes. Rather, it established that a taxpayer’s state of residence may tax income that was earned in another state, even if the taxpayer is also paying tax to that other jurisdiction (DiMascio, 2007).

Once the “jock tax” transitioned from a controversial new policy to the standard in nonresident taxation, the relevant issue became developing a consistent enforcement approach across jurisdictions. Recognizing that common guidelines were needed to mitigate confusion amongst taxpayers and administrators, the Federation of Tax

Administrators (FTA) published a report in March of 1994 titled “State Income Taxation of Nonresident Professional Team Athletes: A Uniform Approach.” The FTA recommended approaches that promoted simplification, uniformity, and fairness (State

Income Taxation of Nonresident Professional Team Athletes: A Uniform Approach,

1994). However, because states have different rates and policies and professional sports teams have different schedules, athletes were and still are subject to different enforcements of the “jock tax.” To fully comprehend why the “jock tax” affects certain players more than others, one must understand how the tax is applied. 7 Chapter 3: Application of the “Jock Tax”

To explain how the “jock tax” is calculated and enforced, certain terms must first be defined. Some terms are specific to this policy, while others are relevant in all income tax discussions.

Key Terms

Taxable Income – The amount of income that is used to calculate an individual’s income tax due. Taxable income is generally described as gross income minus any deductions, exemptions or other adjustments that are allowable in that tax year (Taxable Income).

Tax Liability – The total amount of tax that a person is legally obligated to pay to an authority as the result of the occurrence of a taxable event (Tax Liability).

Non-Resident (NR) – An individual who mainly resides in one region or jurisdiction but has interests in another region (Non-Resident).

Allocation of Income – The method of computing how much income is assigned to a certain jurisdiction (DiMascio, 2007).

Duty Days – All practice days, game days, and travel days from the beginning of a team’s official preseason training through the last game in which the team competes, including any postseason play (Hodge & Hoffman, 2004).

Tax Credit – An amount of money that a taxpayer is able to subtract from the amount of tax that they owe to the government (Tax Credit).

Effective Tax Rate (ETR) - The net rate a taxpayer pays on income that includes all forms of taxes. It is calculated by dividing the total tax liability by taxable income (Effective Tax Rate).

Marginal Tax Rate - The amount of tax paid on an additional dollar of income. The marginal tax rate for an individual will increase as income rises (Marginal Tax Rate).

8 Calculation

Again, the “jock tax” refers to the tax levied by authorities on visiting professional athletes. This is different from the income tax that most taxpayers encounter

(taxes levied solely by the state and local authorities in which they reside). When administrators enforce the “jock tax”, they first must calculate how much of an athlete’s taxable income is allocated to their specific jurisdiction. When the “jock tax” was first administered, jurisdictions varied in their approach. Some used the games played method, while others used the duty days method to allocate income.

The games played method, as it sounds, allocates income based on the portion of games played in each jurisdiction. While this made calculations simple, it also ignored that athletes’ income derived from sources other than solely playing in games—such as practices, team meetings, and public relations activities (DiMascio, 2007). Recognizing this faulty logic, the FTA recommended the duty days approach in its 1994 report, and all states now use the duty days method.

The duty days approach calculates the “jock tax” by multiplying the portion of an athlete’s duty days spent in a certain jurisdiction by that athlete’s total taxable income.

For example, if an athlete living in California spent 4 of his 100 duty days in Buffalo,

New York, New York taxing authorities would multiply his annual taxable income by 4% to calculate his taxable income in New York. Next, this taxable income figure would be subject to the state and local tax rates of New York and Buffalo to calculate the athlete’s state and local “jock tax” liability. 9 As was already established, there is nothing legally preventing states from taxing these nonresident athletes on the same income that their home states are also taxing.

However, this issue is largely mitigated by the fact that almost every state grants its resident taxpayers a tax credit for amounts paid to other jurisdictions to prevent the issue of double taxation (DiMascio, 2007). On the surface, this would imply that the “jock tax” is merely an exercise in money changing hands if taxes and credits cancel each other out. There is one additional layer to the policy, though, which creates the inequities among the nonresident taxpaying athletes. The resident state will normally credit only up to the amount that it would have collected, had the athlete worked only in his home state

(DiMascio, 2007). The state of Illinois is the lone exception, as it chooses not to grant any such credit for its resident athletes. In addition, if the home state taxes at a higher rate than the outside jurisdiction, the home state will normally collect the tax on the difference between the two liabilities. This presents three distinct scenarios that athletes can potentially encounter when paying taxes to a nonresident jurisdiction:

1. The outside jurisdiction has the same tax rates as the athlete’s home state,

meaning the total taxes paid will not change as a result of the “jock tax” policy.

For example, when a player from the Tennessee Titans making $770,000 per year

plays a game against the Seattle Seahawks in Seattle, his hypothetical tax scenario

can be expressed as follows:

10 Figure 1: Non‐Resident with Same Rates, No ETR Effect (Tennessee @ Seattle)

Because the player’s resident jurisdiction (Tennessee (TN), on the right) and

“jock tax” jurisdiction (Washington (NR), on the left) apply the same rates—in

this case, 0%—he does not pay any more taxes to the outside jurisdiction than he

would have to his resident jurisdiction. As a result, there is no change in his

effective tax rate.

2. The outside jurisdiction has lower tax rates than the athlete’s home state, meaning

the total taxes paid will not change as a result of the “jock tax” policy. For

example, when a player from the Minnesota Vikings making $770,000 per year

plays a game against the Indianapolis Colts in Indianapolis, his hypothetical tax

scenario can be expressed as follows:

11 Figure 2: Non‐Resident with Different Rates, No Effect (Minnesota @ Indianapolis)

Because the player’s “jock tax” rates (Indiana (NR), on the left) are less than his

home tax rates (Minnesota (MN), on the right), he will pay less tax to Indiana

($374) than he normally would have to Minnesota for a home game ($589).

Minnesota will allow the player to credit the $374 paid to Indiana on his

Minnesota return so as to avoid double taxation, but it will tax him for the

difference ($215). As such, the “jock tax” policy only changes how much each

state will collect for the taxable income allocated to this game, but it does not

change how much the player pays or the player’s ETR.

3. The outside jurisdiction has higher tax rates than the athlete’s home state,

meaning the total taxes paid will increase as a result of the “jock tax” policy. If

the athlete plays in a city that levies a local income tax, this will increase the

athlete’s tax liability further. For example, when a player from the San Diego 12 Chargers making $770,000 per year plays a game against the St. Louis Rams in

St. Louis, his hypothetical tax scenario can be expressed as follows:

Figure 3: Non‐Resident with Different Rates, Higher ETR (San Diego @ St. Louis)

Because the player’s “jock tax” rates (Missouri (NR), on the left) are greater than his

home tax rates (California (CA), on the right), he will pay more tax to Missouri and

the city of St. Louis than he normally would have, had all of his income been taxed in

California. Most importantly, his home jurisdiction only allows a credit for the

amount he would have paid to the home jurisdiction had no “jock tax” been assessed.

This is illustrated in the upper left corner of Figure 3. The player is assessed $435 by 13 the state of Missouri, but California only allows a tax credit of $147, the amount it

would have assessed him for these two duty days. In addition, the city of St. Louis

assesses a flat 1% tax on the athlete for income earned while in its jurisdiction, which

totals $132 in this scenario. The player receives no credit for this additional tax

liability either. The excess state tax paid ($435 to Missouri instead of $147 to

California) and excess local tax paid ($132 paid to the city of St. Louis instead of $0

to San Diego) sums to $420 of additional tax owed by the player ((435-147)+120).

This scenario exemplifies the worst-case scenario that professional athletes face and

results in the player’s effective tax rate increasing in these situations due solely to the

“jock tax” policy.

Each duty day an athlete spends in an outside jurisdiction will fall into one of these three general scenarios. Scenario 1 does not affect the players, but may affect the taxing jurisdictions of the two teams. Scenario 2 does not affect the players, but likely affects the taxing jurisdictions of the two teams. Scenario 3 definitely affects both the players and the taxing jurisdictions of the two teams. The effects on the taxing jurisdictions will be discussed in Chapter 9 of this paper.

Scrutiny of the “jock tax” stems from all three of these scenarios. When players and jurisdictions aren’t affected at all, critics question if the policy results in anything more than an increased compliance burden for all parties. When players aren’t affected but taxing jurisdictions are, the argument shifts to the inequity among states that the policy creates. The crux of the issue and the majority of the criticism lie in Scenario 3, though. A more precise way of describing the effect in Scenario 3 is to say the players 14 always lose (incur a higher tax liability), and the nonresident jurisdiction always wins

(collects more tax revenue). These are some of the main reasons myself and others were interested in studying the “jock tax” and its effects.

Enforcement

Until now, I have only referred to professional athletes as being subject to the

“jock tax.” After all, they are the jocks. The truth, though, is that the high-income athletes that administrators wanted to target are not the only ones who pay the “jock tax.”

Rather, the tax is also imposed on every coach, scout, and trainer that travels with the team into nonresident jurisdictions for work (Hodge & Hoffman, 2004). The tax is not applied any differently on coaches or trainers than it is on athletes. However, because compliance costs are fixed regardless of occupation, the administrative burden of filing tax returns is proportionately more difficult for lower-income wage earners, such as team scouts and trainers (Hoffman). This inequity is another reason that academics and policy experts have previously criticized the “jock tax.”

Chapter 4: Previous Research

Prior studies of this topic have focused on the issues previously identified. Scott

Hodge and David Hoffman of the National Tax Foundation published Special Report No.

130 on July 1, 2004 titled “Nonresident State and Local Income Taxes in the United

States: The Continuing Spread of "'Jock Taxes.'” Their report concluded that the “jock tax,” should be abolished, citing the following reasons for why it is poor tax policy:

! The jock tax raises little revenue and does it inefficiently 15 ! Employees of sports franchises are no different from other salaried workers

! Many low and middle-income people are forced to pay

! Earnings in other professions match athletes’ earnings

! The administrative burden

! Athletes earn their money at home, not on the road

Taking a similar stance, John DiMascio submitted a paper titled “The ‘Jock Tax’: Fair

Play or Unsportsmanlike Conduct” to the University of Pittsburgh Law Review in 2007.

DiMascio focused on the policy’s adverse effect on states such as Washington, which does not impose any income taxes to residents or non-residents. Non-taxing states,

DiMascio states, suffer because when outside cities and states tax its home residents, disposable income is lost and tax revenues are increased for jurisdictions imposing “jock taxes.” Citing issues of economic nexus, selective enforcement, and compliance burdens,

DiMascio also concluded the “jock tax” is poor policy (DiMascio, 2007).

These publications guided my research on the topic, but I wanted to test their assertions, look at the issue from other perspectives, and discover if I could create a practical tool to assist individuals subject to the “jock tax” in making informed decisions given their circumstances.

Chapter 5: Development of Hypotheses

While the “jock tax” applies to professional athletes of all major professional sports in the U.S., the focus of this paper is on the players, coaches, and trainers 16 (henceforth referred to collectively as personnel) employed by teams in the National

Football League (NFL). This is done for a variety reasons.

Narrowing the study to one specific sport allows for comparability between the teams and personnel. In addition, part of the motivation for the paper is to provide a practical tool for policymakers, sports fans, and personnel to better understand the effects of the “jock tax” policy. Professional football’s popularity continues to grow in the

United States. According to results from Harris Poll’s 2011 survey of America’s favorite sports, over one-third of U.S. adults (36%) who say they follow at least one sport say pro football is their favorite, while baseball was second with just 13% of the vote (Poll Shows

Popularity Of Pro Football Continues Growing While Baseball Slides , 2012). Also, there are more athletes on NFL teams (55 per team) than any of the other four major professional sports (Salary Cap). As such, focusing the study on the NFL maximizes the number of end users who can benefit from the new knowledge produced in this paper.

Lastly, NFL teams play fewer games in a season than any of the other 4 major professional leagues, which means a lower portion of duty days are spent in outside jurisdictions. Thus, if it is shown that the “jock tax” has a material effect on NFL personnel, it will certainly have a material effect on personnel of other leagues, which are subject to even more “jock taxes” because of more duty days worked in outside jurisdictions.

The development of the hypotheses was focused on answering certain questions related to the “jock tax.” I felt it was important to address previously made assertions regarding the reasons for why the policy should be abolished. For example, is the 17 primary issue that personnel are unfairly targeted and financially affected while certain states are benefiting significantly more than others because of the policy? Or is the issue one of compliance burdens that serve no purpose? Either argument supports the position that the “jock tax” should not exist, but it is important to identify the basis for the problems it causes.

In addition, the paper seeks to understand whether or not the media correctly discusses income tax implications in sports or if they are indeed conveying misguided opinions to users of information. Earlier, I asserted that the media is incorrectly assuming that professional athletes should move to states with the lowest statutory income tax rates. By testing the impact of the “jock tax” on effective tax rates, this claim can be further discussed with useful data.

Chapter 6: Hypotheses

This paper will test the following three hypotheses:

1. I expect that the financial effect of the “jock tax” on NFL personnel will be material enough to question the equitability of the tax and provide further evidence that the tax is poor policy.

2. I expect that personnel of NFL teams in income tax-free jurisdictions will be most negatively affected by the tax.

3. I expect the perception by the media and public to be incorrect about how employment decisions by professional athletes are made based on income taxes. 18 Chapter 7: Design of Model

In order to study the effects of the “jock tax,” 32 hypothetical tax scenarios were

designed using Microsoft Excel, each representing an individual personnel member of

each of the 32 teams in the NFL. The model is designed to calculate the effective tax

rate a team member will experience under the assumption that “jock taxes” are imposed,

and also under the condition that they are not imposed (as if they worked in any other

profession). The difference between these two figures is, in essence, the effect of the

“jock tax.”

Certain inputs to the model are fixed and pre-inputted, meaning they do not

change regardless of the scenario being studied. For example, each team’s schedule was

pre-inputted into their model, using the 2012 NFL schedule (SCGFFL). In addition, all

marginal tax rates for each jurisdiction that teams play in during 2012 were pre-inputted into the model, using 2012 state and local individual income tax rates (State Individual

Income Tax Rates, 2000-2012, 2012) (Local Income Tax Rates by Jurisdiction, 2011,

2011).

Other inputs to the model were formulas. For example, the model was programmed to determine how much of a taxpayer’s nonresident liability would be credited by his home jurisdiction. It was also designed to summarize the effect of the

“jock tax” by calculating the personnel member’s effective tax rate with the “jock tax” and without it. 19 Lastly, a select few inputs to the model were manual. This allows users to create a variety of hypothetical scenarios, while also ensuring the accuracy of the model. For example, the salary of the individual is a manual input, which allows users to study the effects of the “jock tax” for any given annual salary. In addition, the duty days calculation is a manual input, as this ratio is unique to the individual based on the number of days worked (some teams will advance further in the season than others). Examples of the model can be seen in Figures 1-3.

As with any model, certain assumptions needed to be made. The objective of the assumptions was to balance ensuring the practicality of the model while striving for the utmost accuracy in tax calculations.

Assumptions

1. Personnel are residents of the states in which their teams are located

This was the most important assumption to make. It is impossible to make conclusions about how the “jock tax” affects entire teams unless all of the personnel of the teams have the same resident taxing jurisdiction. This is a reasonable assumption to make, as most personnel would live year-round in the state in which they work.

Exceptions include individuals who live elsewhere during the off-season or live in a neighboring state for personal or tax planning purposes; however this model seeks to illustrate the tax scenarios of the majority of personnel.

20 2. Personnel of all teams accumulate 140 duty days, and games played in outside jurisdictions consist of 2 duty days

The duty days percentage is part of the “jock tax” calculation, as it determines the allocation of a team member’s total income to other states and cities. Duty days are unpredictable, as it cannot be known how long a team’s season will last (will they make the playoffs, Super Bowl, etc). The number 140 was calculated by counting duty days from the beginning of official pre-season training camp until the end of the regular season. Using 2 duty days as the standard amount spent in other jurisdictions for road games is standard practice in almost every state and city (teams arrive the day before the game and stay through the following day), and was thus incorporated into the model.

3. Deductions and unrelated credits are ignored.

Effective tax rates are calculated without any deductions or credits other than credits for taxes paid to outside jurisdictions for “jock taxes.” The purpose of this model is to highlight differences in effective tax rates resulting from the “jock tax,” not to estimate the actual effective tax rates that personnel of NFL teams will incur. Estimating actual rates is not feasible because each team member has unique tax situations, and moreover, speculating as to such rates is not an objective of this paper.

4. Composite tax returns are ignored.

One of the recommendations set forth by the FTA in its 1994 report was that states and professional sports teams support the filing of composite tax returns (State Income

Taxation of Nonresident Professional Team Athletes: A Uniform Approach, 1994). A 21 composite tax return would require only the team itself to file in outside jurisdictions, rather than each of its individual personnel members. As such, the administrative burden on both administrators and taxpayers would be reduced. While the option exists in some states, it has not become the status quo. As such, this model assumes that each individual personnel member pays “jock taxes” to outside jurisdictions on an individual basis, as it is not reasonable to infer when composite returns are utilized.

5. Local income taxes imposed on resident team personnel are not considered additional “jock taxes.”

Certain U.S. cities, such as Cleveland, Philadelphia, and St. Louis impose an income tax for income earned within its jurisdiction. This tax applies to residential workers as well as non-residents who earned a portion of their income within the jurisdiction.

Members of teams such as the Cleveland Browns, Philadelphia Eagles, and St. Louis

Rams are thus subject to this tax for all of the games and practices held in their home cities. However, this paper does not consider it to be an additional “jock tax” on these personnel because it is unknown whether they would have been subject to the tax had they gone into another profession.

To be clear, “jock taxes” imposed by local jurisdictions on non-residents is considered to be an additional “jock tax” in this model, because working taxpayers of other professions would not be subject to this additional tax.

22 6. It is assumed that all personnel members pay their own “jock taxes.”

For certain games, or potentially entire seasons, it is possible that team owners “pick up the tab” of the “jock tax” owed to outside jurisdictions. This is again speculative, though, and as a result the model assumes that the taxpayer is liable for all income taxes incurred from income earned in nonresident states and cities.

7. State reciprocity agreements are assumed to be enforced

In order to relieve taxpayers of the double burden incurred when individuals must file in their home states and other states where they also earned income, many states have entered into state tax reciprocal agreements (Ditmer).

States that enter into agreements are geographically close to one another, with the logic being that workers living in one state may work in a neighboring state. Because the flow of workers is assumed to go in both directions, some states have agreed to reduce the burden on themselves and the taxpayers by passing reciprocal agreements, which exempt taxpayers living in certain states from filing in others.

It was assumed in the model that all state tax reciprocal agreements are enforced, and as such, no “jock tax” would be imposed if such an agreement voided it.

Chapter 8: Results

As was previously described, the model allowed for manual input of a team member’s annual salary. Thus, the change in effective tax rates resulting from the “jock tax” policy can be identified for a personnel member of any of the NFL’s 32 teams at any 23 hypothetical salary. Three specific salary figures were used to illustrate three different scenarios, their effects, and the differences between them.

The first figure used was an annual salary of $390,000 per year. This figure is the league’s rookie minimum salary (O'Shei, 2012). It was important to establish a baseline for the impact the “jock tax” could have on a player with the lowest possible annual income. If the effects are felt at this level, when very little income is allocated to outside jurisdictions and subject to “jock taxes,” then surely the implications would only grow as an individual’s annual salary increased. In addition, this figure has a practical use as undrafted rookies would be making this salary and could use the results of the model to weigh the tax implications of signing with a certain team. Results from this scenario are illustrated in Figure 4.

The second figure used was an annual salary of $770,000 per year. This is the

2012 median salary for all NFL players (Glass, 2012). Visualizing the results at the league’s median salary is necessary to understand how the “jock tax” affects the

“average” NFL player. The results at this salary are important not only for practical purposes (most players would have a salary close to this figure), but also because it communicates the effect of the policy on a typical player, information that outside users would likely be most interested to know. For this reason, appendices A-FF can be seen beginning on page 43 illustrating the scenarios for an individual making $770,000 per year on each of the 32 NFL teams. Summarized, consolidated results from this scenario are illustrated in Figure 5. 24 Lastly, the league’s highest base annual salary in 2012—$18,000,000—was used.

Peyton Manning, a quarterback for the Denver Broncos, will make $18,000,000 in salary

this year (2012 NFL Top Base Salaries). Interestingly, Manning was a free agent during

the 2012 off-season, and thus could have used a tool such as this model to consider the

state and local income tax implications of his decision to sign with any of the 32 teams.

Studying the highest income earners provides a ceiling to the range of the effects that the

policy can have as well as an idea of the maximum tax that could be paid in “jock taxes,”

as the highest salaried player will have the most income allocated to and taxed by outside

authorities. Results from this scenario are illustrated in Figure 6.

Figures 4-6 show the change in effective tax rates and the excess tax liabilities

incurred as a result of the “jock tax” policy from highest to lowest.

25 Figure 4: Change in ETR at $390,000 (Rookie Minimum) Salary

26 Figure 5: Change in ETR at $770,000 (Median) Salary

27 Figure 6: Change in ETR at $18,000,000 (Highest 2012 Base) Salary

28 In any of the three scenarios, the placement of each team among the rankings is not coincidental. The reason that teams are ranked high, low, or in the middle can be traced to a variety of causes such as the team’s schedule, the team’s home tax rates, and the existence of state reciprocity agreements.

Teams ranked consistently at the top of the charts are most affected by the “jock tax.” This likely occurs because their home state’s tax rates are low, (meaning it allows little or no credit for taxes paid to other jurisdictions) their schedule matched them with away games in high-tax states, and they do not live in a state with reciprocal tax agreements (which would exempt “jock taxes”). In addition, the effect of holding training camp in a state outside of the team’s home jurisdiction has serious tax consequences. For example, the Dallas Cowboys (California instead of Texas), New

York Jets (New York instead of New Jersey) and New York Giants (New York instead of

New Jersey) each incur extra “jock taxes” because the location of their training camps has higher tax rates than their home state. This effect is much greater than one game played in a high-tax jurisdiction because training camp typically lasts 4 weeks (about 24 duty days as opposed to 2 for a game), thus allocating a significant amount of taxable income to the higher tax jurisdiction.

On the other hand, teams land consistently at the bottom of the charts (least effect) in all three scenarios when their home tax rates are high, their schedule does not include games in cities with local “jock taxes,” and multiple reciprocal tax agreements are enforced. The Minnesota Vikings are a perfect example of this, as Minnesota has relatively high individual income tax rates, a reciprocal tax agreement with the state of 29 Michigan (where the division rival Detroit Lions are located), and nominal local taxes incurred as a result of the 2012 schedule.

While many teams stay towards the bottom or top of the charts regardless of salary inputted, some teams’ tax positions change greatly depending on the income of the individual in question. The reason this happens is that most states individual income tax rates are marginal tax rates, meaning different rates apply to different tiers of income.

The higher tiers of income are taxed at higher rates. In most nonresident returns filed in compliance with the “jock tax” policy, only the lowest tiers will be affected because only

2 duty days of income are allocated to the outside jurisdiction. However, as a player’s salary increases, more of his income will be taxed by the nonresident state, and higher rates will be applied.

This is particularly true for personnel of teams in California, for example. At low salaries, California has relatively low tax rates, meaning lower credits are granted and a greater “jock tax” effect is experienced. This can be seen in figures 4 and 5, where the

Oakland Raiders, San Diego Chargers, and San Francisco 49ers are among the teams most affected by the policy. However, for a player making $18,000,000 for these teams, the income is taxed at higher marginal rates by California meaning higher credits are allowed and a lesser “jock tax” impact.

30 Chapter 9: Conclusions

Hypotheses Revisited

1. I expect that the financial effect of the “jock tax” on NFL personnel will be material enough to question the equitability of the tax and provide further evidence that the tax is poor policy

Materiality is, of course, a relative concept. Using the results shown in figure 5 to

examine the effects of the “jock tax” on an “average” NFL player, it can be seen that

the range of excess liability incurred ranges from $138 to $14,114 with a median of

$1,662.

To most, this average figure would likely be considered inconsequential for

someone making $770,000 per year. However, the unique parameters associated with

playing in the National Football League require that the “worst-case” scenarios are

used to judge materiality rather than the average. Because most players are drafted

onto teams and thus have no say in what team they play for and where they work, if

any team’s excess tax and change in effective tax rate are considered to be material,

the entire policy should be considered to have a material effect.

Even if the Dallas Cowboys are ignored as an outlier, players on teams most

affected such as the Seattle Seahawks will incur additional taxes of over four

thousand dollars because of the “jock tax.” While athletes are undeniably high-

income earners, it is also important to note that there are significant additional costs

associated with being a professional athlete such as agent and union fees. Perhaps

more importantly, the average NFL career is just 3.52 seasons, and the average age of 31 retired NFL players is just 28 years old, meaning players must maximize their income

while they have the opportunity to work as professional athletes (Campbell, 2011).

In addition, it is important to remember that the “jock tax” is imposed on NFL

profession solely because of their selected profession. Other professionals such as

lawyers and accountants also commonly do work in outside jurisdictions; however

because authorities cannot verify the whereabouts of these professionals as easily,

they are exempt from additional nonresident taxation. This is the main factor that I

believe reduces the threshold of materiality to near 0. Because there is no reasonable

basis—that is to say, no way of justifying that the income earned in outside

jurisdictions is most attributable to the outside jurisdiction—for the taxation and it is

only enforced because it is feasibly enforceable, additional tax incurred by the

personnel should be considered inequitable and poor policy.

Had the credits granted by almost every home jurisdiction completely mitigated

the effect of the tax, it would have provided evidence that the tax did not discriminate

and rather was merely an example of compliance waste. Instead, given the thousands

of dollars per player being collected, I submit that the financial effect of the “jock

tax” is indeed material enough to question the equitability and purpose of the policy.

2. I expect that personnel of NFL teams in income tax-free jurisdictions will be most negatively affected by the tax

The results indisputably show that this hypothesis is indeed true, regardless of

how much an individual makes per year. There are 4 states—Washington, Texas,

Florida, and Tennessee—that do not impose an individual income tax on residents or

non-residents. The personnel of the NFL teams that call these states home—the 32 Seattle Seahawks, Dallas Cowboys, Houston Texans, Tampa Bay Buccaneers, Miami

Dolphins, Jacksonville Jaguars, and Tennessee Titans—are clearly among the most affected by the “jock tax” at all income levels.

Again, this pattern occurs because team members from these organizations must pay “jock taxes” for duty days spent in outside jurisdictions that impose a “jock tax” and do not receive any credits for these additional taxes paid.

Although personnel employed by these teams will have an actual state effective income tax rate much lower than members of other teams, this information is not considered important by this paper for reasons that will be explained in the analysis of the third hypothesis.

3. I expect the perception by the media and public to be incorrect about how employment decisions by professional athletes should be made based on income taxes.

The evaluation of this assertion is intertwined with the confirmation of the second hypothesis in this paper. Because the results show that the “jock tax” most negatively affects teams located in low-tax states, the foundation for this claim remains intact.

As was discussed in the introduction of this paper, most sports media outlets correctly reference the “jock tax” when mentioning the tax implications of athletes playing for different teams. However, the focus of the discussion is on the attractiveness of playing for teams in low-income tax states such as Florida and

Texas. As the model shows though, for an athlete of any income level, these are the teams which suffer the most from the “jock tax” policy. Herein lies the fundamentally incorrect assumption that should be reconsidered. Although the actual 33 state and local income taxes paid by athletes living in low-income tax states will be

less than their counterparts, assuming that this makes playing in such states the best

option (from a tax perspective) for athletes ignores the additional penalty of the “jock tax” incurred, the existence of other forms of state and local tax, and the implicit

function of taxes.

The additional penalty of the “jock tax” in low-income tax states has been

established in the discussion of hypothesis #2. The existence of other forms of state

and local taxes is another important issue that contradicts the assumption made by

most media regarding athletes and taxes.

Although the reasoning is unclear—perhaps because income taxes are an expense

incurred as a result of liquid well-known assets—income taxes seem to be the most

attention-worthy of all the taxes imposed by state and local jurisdictions. However,

there are many other taxes that exist and affect residents of each state including sales

taxes, property taxes, estate taxes, and many more (US State and Local Taxes, 2003).

Not only do other taxes exist, but according to data from the Tax Foundation, states

on average generate more revenue from sales and property taxes than they do from

income taxes (Prante, 2009). Yet, when athletes and taxes are mingled in media

publications and discussions, these other taxes are not cited. It is natural to make this

connection, of course, because athletes are high-earning individuals, but property and

sales taxes are also based on high spending—something that high-earning individuals

are likely to do.

The reason the “jock tax” is so relevant, though, is because it is an additional

income tax incurred by athletes, particularly in low-income tax states. So, while 34 athletes in every state are paying all forms of state and local income tax, athletes

playing for the Jacksonville Jaguars and Tennessee Titans are paying all forms of

state and local tax in their home jurisdictions in addition to “jock taxes” paid to other

states and cities.

To be fair, there still are some states that are more “tax-friendly” in terms of state

and local taxes (State and Local Tax Burdens: All States, One Year, 1977 - 2010,

2012)). The Tax Foundation publishes annual rankings listing the state and local tax

burdens assumed by residents of all fifty states. In some cases, such as Texas or New

York, a state’s income tax rates (low in the case of Texas, high in the case of New

York) are an accurate reflection of their overall tax friendliness. However, in other

cases, such as Washington and Florida, this relationship does not hold true. Florida

and Washington do not impose any income taxes, but because their sales tax and

other state and local taxes are above average, they placed 27th and 28th in the 2010 tax

burden rankings. Even in cases such as Texas, though, one still must consider the

function of taxes.

Every state must impose taxes on its residents in some form or another. What is

the purpose of these taxes? According to the South Carolina Department of Revenue,

citizens pay taxes to fund the many services offered that could not be managed

effectively under any other system, such as public schools, safe highways, health care, prisons and social services for low-income citizens (Why Do We Pay

Taxes?). Each state collects a different amount of taxes and provides a proportionally different amount of services. Given these conclusions, it can be stated that even in the most “tax-friendly” states, there is a consequence of paying less taxes—less 35 services provided by the state government. While an individual’s political views likely shape his or her opinion on whether lesser taxes and a less involved government is proper or improper policy, it cannot be denied that citizens in low-tax states experience the trade-off of fewer government provided services.

To summarize, the popular theory is that if athletes are considering the income tax implications of playing for certain teams, they should seek low-income tax states.

Although residents of states with low income tax rates will pay less actual income taxes, they will not necessarily pay low state and local income taxes in the aggregate.

Even those who pay less aggregate state and local income taxes, though, consequentially live in states where fewer services are provided by the government.

When this information is considered collectively, the resulting conclusion is that if the “jock tax” did not exist, any state would be as attractive as any other when all factors are considered. After all, it is highly subjective to claim that certain states are any better than others. The “jock tax,” though, does exist, and it has no offset benefit.

It is simply extra money paid out of pocket to a taxing authority based on an athlete’s profession. For this reason, this paper believes that the model’s results should be used to evaluate the tax consequences of playing for certain teams, because it measures the additional “jock tax” that an athlete will incur on each of the league’s 32 teams. As a result, the perception by the media and public is indeed incorrect about how employment decisions by professional athletes should be made based on income taxes. 36 Related Topics

The results of the model and subsequent analysis thus far have focused on the effects of the “jock tax” on individual NFL personnel. However, it is also important to discuss the policy’s effect on other parties such as NFL teams, personnel of other major professional sports leagues, and state governments.

Effect on NFL Teams

The results of the model indicate the additional “jock tax” incurred by members of each NFL team in 2012. While the model only shows results using the 2012 schedule, it also gives insight into which teams are permanently stuck in unfriendly tax divisions or are responsible for their own personnel’s additional “jock taxes.”

Some teams’ changes in ETR will fluctuate on a yearly basis based on the current schedule. Teams in certain divisions, though, are more likely than others to be affected by the policy year after year. Each team in the AFC North, for example—comprised of the Baltimore Ravens, Pittsburgh Steelers, Cincinnati Bengals, and Cleveland Browns— plays each other every year. As a result, these teams will rarely fall to the bottom of the rankings regardless of the rest of their individual schedules because each of these four teams plays in cities that impose a local income tax. These local “jock taxes,” unlike those enforced by states, are generally not credited by team member’s home states.

In addition, a team’s training camp location can be even more influential on its personnel’s tax burden than any other factor because so many duty days are spent at training camp, allocating income to that location. For most teams, training camp is in its home state rendering the effect meaningless, but for teams like the New York Giants, 37 New York Jets, and Dallas Cowboys, all of which hold camp in a higher-tax state, the burden will be felt heavily by its personnel every year.

It could be argued that because personnel of teams such as the Cowboys or

Steelers will have to expect additional “jock taxes” each season that a salary cap adjustment should exist so these teams could pay its members more to compensate for the additional tax. Because teams choose where training camps are located, though, this argument is not likely to have much merit. Still, management of these teams should consider the tax consequences of its decisions on its own employees. While players and staff of teams in the AFC North are subject to additional taxes because of factors outside of their control, their isolated situation is unlikely to spurn any movement for change in the salary cap system.

Effect on Other Leagues

As was mentioned earlier in this paper, the NFL was selected as the subject of this study in part to provide a baseline measure for the effects of the “jock tax” on personnel of the other three major professional sports leagues in the U.S.

Given the results of the model, it is clear that the effect would be even greater on the personnel of these other three leagues. While the NFL only plays 20 games (10 away games) per year, the National Hockey League (NHL) and National Basketball

Association (NBA) play about 90 total games per year while Major League Baseball

(MLB) plays 162 games. Considering that NFL personnel experienced excess costs in the thousands or potentially tens of thousands of dollars with a maximum of only about

50 duty days (20 from games, about 30 from training camp) allocated to outside 38 jurisdictions per year, personnel in these other leagues would experience a greater effect because they would have a minimum of 45 games road games—often counting as two duty days—allocated to outside jurisdictions per year.

This analysis serves as further evidence that the “jock tax” is an inequitable policy for all professional athletes in the United States.

Effect on Other States

A noteworthy and controversial effect of the “jock tax” policy is its impact on the budgets of all states that host professional sports teams. The results shown in figures 4-6 not only illustrate which teams’ personnel are most affected by the policy, but they also communicate which states are suffering or benefiting from the policy. For example, members of the Dallas Cowboys—regardless of income level—pay the most additional income tax as a result of the “jock tax” policy. This means that the state of Texas is also losing the most taxable revenue, for two reasons.

States that do not impose individual income taxes, such as Texas, are clearly at a disadvantage as a result of the policy. Texas collects no “jock taxes” from any visiting professionals, just as it does not collect any income taxes from its own residents. In this sense, they are in the same position as if the “jock tax” did not exist at all. States such as

Texas, Washington, Florida, and Tennessee do suffer, though, because their residents still have to pay “jock taxes” to outside jurisdictions. These additional taxes represent disposable income flowing out of these states, where it could have been taxed in the other ways that these states primarily generate revenue, such as sales taxes. 39 This fact has not gone unnoticed by the states that are discriminated against by the policy. John DiMascio reveals in his publication on the “jock tax” that in 2006

Washington Representative Chris Strow proposed that the state of Washington adopt a

“retaliation” tax on visiting professional athletes (DiMascio, 2007). The proposal did not pass, and the idea was suggested again as recently 2011 when State Representatives Mike

Hope (R-Lake Stevens) and David Frockt (D-Seattle) formed a coalition to discuss the merits of a “jock tax” (Allen, 2011) The funds from the tax would help finance construction of a new facility or renovation of an existing one for an NBA team. These politicians could not ignore the fact that such a policy would raise revenue for their own state while not costing resident constituents any money. They cited California as an example of a state greatly benefiting from the policy, noting that according to an April

12, 2009, article in The Los Angeles Times, California collected $102 million in taxes from visiting athletes in 2006-07.

Given these statistics, it’s surprising that any of the four income tax-free states would not adopt such a retaliatory tax. After all, the policy would only penalize team personnel that do not live or vote in these jurisdictions. If these states do not fight back against a policy that discriminates against them, it sets a dangerous precedent for how states target taxable income and generate revenue. States, realizing this opportunity to impose “taxation without representation” could increase income tax rates and decrease other taxes (property, estate, etc.) in an attempt to target non-residents. Residents of the state would be unlikely to complain, as there would be no difference in ETR for them, but 40 non-residents would bear the increased burden of the income tax in the form of “jock taxes.”

Given the current set of circumstances, there are clearly winners and losers in the

“jock tax” game with respect to the states involved. States with the highest marginal rates have the advantage and the deck is stacked in their favor. For professional athletes, though, the rules of the game are different; because for team personnel, there are only losers. Mitigating losses is the only form of victory they can claim, and fully understanding the “jock tax” is their best chance to do so.

Chapter 10: Conclusion

When an average citizen informs their neighbors, co-workers, or family members about the possibility of taking a job in a new city, the income tax implications are not likely to be discussed or critically analyzed. But when a professional athlete has the opportunity to choose which team to work for, this may not be the case. Pro athletes’ high profiles and salaries make the discussion of taxes relevant to the athletes’ own financial situation and to the devoted fans that follow them.

The inclination of fans and media alike is to focus on the individual income tax rates of each prospective working location. However, this paper has argued that this logic is flawed, given the importance of other state and local taxes and the implicit function of taxes. Instead, the important factor for team personnel and those that follow them to consider is the effect of “jock taxes.” 41 This study has shown that the financial effect of the “jock tax” policy is material regardless of income level, but particularly for the highest earners, who can experience additional taxes in the tens or even hundreds of thousands of dollars. While these figures should prompt a change in policy given their discriminatory nature, there is no evidence that any modification to the current policy is imminent. As such, employees of professional sports teams should understand how the “jock tax” functions, and what teams will generally cause them to incur the least additional taxes.

The results of the model and subsequent analysis clearly establish that there will be recurring patterns in the rankings of which teams are most affected by the “jock tax” policy. Because of how the tax is enforced and credits are granted by individual states, personnel of teams playing in states that do not impose individual income taxes will always be among the teams most affected by the “jock tax” policy. For personnel of all professional sports teams, there is no such thing as a positive or negative effect of the

“jock tax.” Rather, the best they can hope for is reducing their additional tax liability if they have the freedom to choose an employer.

When LeBron James chose to sign with the Miami Heat in June of 2011, there were likely several factors that went into his selection. While the public and the media may never know the extent to which taxes played a role in his decision, it can safely be assumed that given his annual income, the effect of taxes was considered by James and his advisors. From a tax perspective, James made the correct choice, but his unique case may have given the public and media the wrong idea about the impact of income taxes on professional athletes and their employment decisions. Because had James not made any 42 income from endorsements, this paper believes Miami would likely have been the worst choice for James (James’s other choices were believed to be Los Angeles, Chicago,

Cleveland, and New York City). For almost every employee of professional sports teams, such significant endorsement income is not relevant. Instead, the conclusions reached by this paper are a better example for how the “jock tax” should be considered and discussed than James’s example.

Ultimately, the biggest takeaway when “jock taxes” and professional sports do intersect is that the tax game is one competition that the players cannot win. The states make the rules, and some of them are winning big year after year. When team personnel have the opportunity to select an employer, though, making the right choice can save them thousands of dollars whether their choice is made on television or in their living room. Although taking their talents to South Beach would undoubtedly provide a warm climate and sandy beaches, when it comes to income taxes, the best decision might be to stay away from Miami.

43 Appendix A: Arizona Cardinals

44 Appendix B: Atlanta Falcons

45 Appendix C: Baltimore Ravens

46 Appendix D: Buffalo Bills

47 Appendix E: Carolina Panthers

48 Appendix F: Chicago Bears

49 Appendix G: Cincinnati Bengals

50 Appendix H: Cleveland Browns

51 Appendix I: Dallas Cowboys

52 Appendix J: Denver Broncos

53 Appendix K: Detroit Lions

54 Appendix L: Green Bay Packers

55 Appendix M: Houston Texans

56 Appendix N: Indianapolis Colts

57 Appendix O: Jacksonville Jaguars

58 Appendix P: Kansas City Chiefs

59 Appendix Q: Miami Dolphins

60 Appendix R: Minnesota Vikings

61 Appendix S: New England Patriots

62 Appendix T: New Orleans Saints

63 Appendix U: New York Giants

64 Appendix V: New York Jets

65 Appendix W: Oakland Raiders

66 Appendix X: Philadelphia Eagles

67 Appendix Y: Pittsburgh Steelers

68 Appendix Z: St. Louis Rams

69 Appendix AA: San Diego Chargers

70 Appendix BB: San Francisco 49ers

71 Appendix CC: Seattle Seahawks

72 Appendix DD: Tampa Bay Buccaneers

73 Appendix EE: Tennessee Titans

74 Appendix FF: Washington Redskins

75

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ACADEMIC VITA OF JUSTIN TAYLOR

Justin Taylor [email protected]

2491 Matterhorn Drive Wexford, PA 15090

Education:

The Pennsylvania State University, University Park, PA, 16802 Smeal College of Business Schreyer Honors College Master’s Degree in Accounting Bachelor of Science Degree in Accounting Minors in International Business and Spanish Anticipated Graduation: December 2012

Work Experience

January 2012 – April 2012 Tax Intern Ernst & Young, Pittsburgh, PA

June 2011 – August 2011 Tax and Assurance Intern Baker Tilly Virchow Krause, Tysons Corner, VA

Awards:

The Schreyer Honors College Academic Excellence Scholarship (2008‐2012) The President’s Freshman Award (2009) The Schreyer Ambassador Travel Grant (2009) The Robert W. Koehler Excellence in Accounting Scholarship (2012)

Organizations:

Penn State Accounting Society (2009‐2010) Penn State ComRadio (2010‐2011)