Michael Jordan’s Revenge: The Jock Tax
By Noah Sheer | April 12, 2012
The 1991 NBA Finals was a defining moment in professional sports. It was Michael
Jordan’s first NBA Finals, the end of the “Showtime” era for the Lakers, and the
beginning of the Bulls dynasty. However, at the same time, a more ominous and
quietly discussed tax policy was approved by California State taxing authorities
forever changing American sports.
As the story goes, soon after the celebrations, parades and excitement of the ’91
Finals, the State of California notified Michael Jordan that he would owe taxes for
the days he spent in Los Angeles. In direct response to this new egregious policy,
Illinois passed a bill famously known as “Michael Jordan’s Revenge” – imposing
income taxes on athletes from California and any other state that imposed a tax
on their residents. Many city and state governments followed suit, seizing the
opportunity to reach into the pockets of visiting athletes. Today, nearly every
state that hosts professional sports teams has enacted their own Jock Tax policy.
Even city local taxing authorities such as Cleveland, Kansas City, Detroit and
Philadelphia established similar rules independent of the state.
The Jock Tax policy is a more aggressive and targeted approach to the ‘non-
resident’ income tax. A ‘non-resident’ income tax is a tax imposed by States in
which you do not live in but do have some income-producing interest. These
states (and some cities) can tack on their additional ‘resident’ state tax and have
a claim to your money. Taxing authorities track team schedules and rosters every
year. An athlete from Chicago, IL playing for the New York Knicks is responsible
for both city and state income taxes in both Chicago, IL (Home State) and New
York, NY (State of Employment). Additionally, that player will owe money to
over 20 state and city governments that the team visited throughout the season
(coaching staff included).
What you can do?
A tax plan will save a considerable amount of money. Two accountants will
approach the Jock Tax differently. One may calculate the tax as prorated portions
of salary another may count the number of professional days in state and use
this as a means test. In addition, there are multiple methods to allocate expenses
against each states tax. The taxpayer wants the method that works in his favor
and there is no way to know which method is best unless the tax professional
considers them all. Of course, staying vigilant in keeping track of these expenses
while on the road is imperative.
Responsible tax planning must be a critical component of an athlete’s long-term
financial plan. Yes, you can structure your assets and investments in a more tax
efficient way. If the ‘Michael Jordan Revenge’ tax affects you, reach out to Cherry
Bekaert & Holland this tax season to learn how you can best protect yourself.
Noah Sheer is the Director of Sports & Entertainment at CB&H, a full service CPA firm providing audit, tax and consulting services. He has overseen the growth of the CB&H Sports division representing clients in the NBA, FIBA, NFL, NHL, MLB and PGA Tour.