| | Ohio Supreme Court Strikes Down Cleveland’s ‘Jock Tax’By Paul Caron
Wall Street Journal, Ohio High Court Strikes Down Cleveland’s ‘Jock Tax’:
Ohio’s highest court on Thursday struck down Cleveland’s so-called “jock tax,” ruling that the city was excessively taxing visiting professional athletes using an illegal method to calculate their bills. ...
Mr. Hillenmeyer, a former Chicago Bears linebacker who retired in 2010, played one game a year in Cleveland — over a 20-game season — between 2004 and 2006. Cleveland applied its income tax to 5% (1/20) of his earnings.
The city taxed Mr. Saturday, a former center for the Indianapolis Colts, for a single game in Cleveland in 2008. In his case, he never stepped foot in the city but missed that game due to an injury. He owed money anyway because the city’s regulation applied the tax to any game in Cleveland “in which the athlete was excused from playing because of injury or illness.”
The Ohio Supreme Court, overturning decisions by the state’s tax appeals board, ruled that Cleveland’s taxing method was illegal. The court said the two players were entitled to partial refunds totaling thousands of dollars, plus interest.
Here’s the key passage from one of the two opinions handed down:
Due process requires an allocation that reasonably associates the amount of compensation taxed with work the taxpayer performed within the city. The games-played method results in Cleveland allocating approximately 5 percent of Hillenmeyer’s income to itself on the basis of two days spent in Cleveland. By using the duty-days method, however, Cleveland is allocated approximately 1.25 percent based on the same two days. By using the games-played method, Cleveland has reached extraterritorially, beyond its power to tax. Cleveland’s power to tax reaches only that portion of a nonresident’s compensation that was earned by work performed in Cleveland. The games-played method reaches income for work that was performed outside of Cleveland, and thus Cleveland’s income tax violates due process as applied to NFL players such as Hillenmeyer.
Cleveland is the only city that uses the “games-played” method to calculate the taxable portion of a professional athlete’s income, according to the Columbus Dispatch, which reported on Thursday’s decisions.
taxprof.typepad.com
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