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Is Cleveland’s calculation of NFL player’s tax fair?

On Behalf of | Jan 1, 2015 | Tax Law

Professional athletes have more complex finances than most of us. Because of their large salaries, many states and cities demand that they pay income taxes on the percentage of income attributed to the games they play in those states or cities. Cleveland is one of those cities, and two former NFL players are challenging the method of calculation that Cleveland uses to determine that tax.

Most people who live and work in the same state all year never have an issue like this, and even those who travel a few days to other states typically do not have to worry about paying income taxes in another state because the amount is negligible and the administrative costs of collecting it would exceed the value of the tax revenue.

Ohio allows nonresidents to work up to 20 days in the state before they become subject to the income tax, but high-earning entertainers and pro athletes do not receive this exemption.

With NFL players, earning millions of dollars for just a few games, it becomes worth the state’s effort to collect the portion of the income earned in that state. The objection to Cleveland’s tax is that they use “games-played” as opposed to “duty days” method.

Games-played divides the player’s salary by the total number of games-played, which in this case amounted to about 5 percent of the players salary. The duty-days calculation resulted in an income of about 1 percent.

The players argue this games-played calculation is incorrect, as it fails to accurately apportion their income to the full scope of their employment, which extends beyond merely the 20 games days they play.

The Ohio Supreme Court heard arguments the case this week, and other player organizations have filed fiend-of-the-court brief, supporting the players arguments. The court should release it ruling in a few months.

Wkyc.com, “Former NFL Players Challenge Cleveland Taxes in Ohio Supreme Court,” Kathleen Maloney, January 9, 2015