An Empirical Look at State Income: Taxation of Major League Baseball Players

By Aiuppa, Tom; Haupert, Mike et al. | Nine, Fall 2003 | Go to article overview

An Empirical Look at State Income: Taxation of Major League Baseball Players


Aiuppa, Tom, Haupert, Mike, Sherony, Keith, Nine


The large increases in athletes' salaries have prompted states to exercise their rights to tax nonresident professional ballplayers. The general trend has been for each state to levy its tax rate on part of the salary of each player for games played within the state. The result is a complex system with extra burdens for players, owners, and states. In response some of the constituencies and the Federation of Tax Administrators have proposed that all states adopt the same methodology for taxation. This paper summarizes the evolution of the system where states tax nonresident athletes. It also presents the impacts of some of the proposed tax polices and provides insight as to the direction of future tax policy.

The varied state tax polices affect players, team owners, and states. Every player has to comply with multiple tax codes, each with a different tax rate and possibly a different system for allocating how much of the player's income is taxable. State tax administrators are affected because they need to determine how much income should be taxed, which tax payments should be offset by a credit, and if the correct amounts of taxes have been paid. These effects are more complicated when multiple state tax laws and rates are applied to a tax return. Furthermore, the chance of error in making a determination rises as the process becomes more complex. Team owners are affected because they must supply tax information about their players to numerous states. However, a stronger impact is that different taxing methods may affect a team's position when negotiating salaries with players. On the surface a team in a state that has a zero or low income tax rate has a recruiting advantage; however, that argument is not as effective if other states tax part of the players' incomes.

TERMINOLOGY

To facilitate the explanations and discussions, this section summarizes four methods for taxing professional athletes. The first three are the home state method, the games played method, and the duty days method. These methods are so named by a tax attorney, Jeffery Krasney, in an article advocating standardization of the tax treatment for athletes. (1) The fourth method, the tax credit method, is the tax policy currently in force in many states; the current authors propose its name.

1. The home state method: An athlete's entire income is taxed only by the state where the athlete plays home games.

2. The games played method: Each state taxes an athlete on the number of games the athlete plays in the state.

3. The duty days method: The amount of tax paid by an athlete to a state is based on the number of days that the athlete is contractually obligated by his team to spend in the state.

4. Tax credit method: Each state taxes the entire income of athletes who play home games in the state, but the tax is reduced by a credit equal to the amount of income taxes paid to other states. Each state also taxes the income of athletes of teams based in other states, and the amount of tax is related to the number of games played in the state.

HOW IT ALL BEGAN

Each state has had the right to tax nonresidents on income earned in the state since a 1920 federal court decision. (2) However, during the era in which athletes' salaries were held well below the free market level with such arrangements as the reserve clause, states had little incentive for taxing nonresident athletes. Rather, states routinely used the home state method of taxing players, in which all of a player's income was taxed in the state in which his team was located. The only wrinkle to this policy was the situation in which a player played for a team in one state but claimed a different state as his domicile. In these cases players were often levied an income tax in both states, although it was not uncommon for tax credits to be granted by the domicile state for taxes paid in the state of employment. Regardless the ultimate result was that the home state method applied--that is, only the state where the athlete played home games taxed the athlete's entire income. …

The rest of this article is only available to active members of Questia

Sign up now for a free, 1-day trial and receive full access to:

  • Questia's entire collection
  • Automatic bibliography creation
  • More helpful research tools like notes, citations, and highlights
  • Ad-free environment

Already a member? Log in now.

Notes for this article

Add a new note
If you are trying to select text to create highlights or citations, remember that you must now click or tap on the first word, and then click or tap on the last word.
One moment ...
Default project is now your active project.
Project items

Items saved from this article

This article has been saved
Highlights (0)
Some of your highlights are legacy items.

Highlights saved before July 30, 2012 will not be displayed on their respective source pages.

You can easily re-create the highlights by opening the book page or article, selecting the text, and clicking “Highlight.”

Citations (0)
Some of your citations are legacy items.

Any citation created before July 30, 2012 will labeled as a “Cited page.” New citations will be saved as cited passages, pages or articles.

We also added the ability to view new citations from your projects or the book or article where you created them.

Notes (0)
Bookmarks (0)

You have no saved items from this article

Project items include:
  • Saved book/article
  • Highlights
  • Quotes/citations
  • Notes
  • Bookmarks
Notes
Cite this article

Cited article

Style
Citations are available only to our active members.
Sign up now to cite pages or passages in MLA, APA and Chicago citation styles.

(Einhorn, 1992, p. 25)

(Einhorn 25)

1

1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

Cited article

An Empirical Look at State Income: Taxation of Major League Baseball Players
Settings

Settings

Typeface
Text size Smaller Larger Reset View mode
Search within

Search within this article

Look up

Look up a word

  • Dictionary
  • Thesaurus
Please submit a word or phrase above.
Print this page

Print this page

Why can't I print more than one page at a time?

Help
Full screen

matching results for page

    Questia reader help

    How to highlight and cite specific passages

    1. Click or tap the first word you want to select.
    2. Click or tap the last word you want to select, and you’ll see everything in between get selected.
    3. You’ll then get a menu of options like creating a highlight or a citation from that passage of text.

    OK, got it!

    Cited passage

    Style
    Citations are available only to our active members.
    Sign up now to cite pages or passages in MLA, APA and Chicago citation styles.

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn, 1992, p. 25).

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn 25)

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences."1

    1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

    Cited passage

    Thanks for trying Questia!

    Please continue trying out our research tools, but please note, full functionality is available only to our active members.

    Your work will be lost once you leave this Web page.

    For full access in an ad-free environment, sign up now for a FREE, 1-day trial.

    Already a member? Log in now.