Jock Taxes

I. What is a Jock Tax

A “jock tax” is a tax on a professional athlete who is a citizen of another state, which can be easily traced to wages earned, as a result of, being allowed to perform services within its jurisdiction. The underlying theme is that those who can afford to pay it should be honored to pay it. Deeper down, there is a fundamental theory of tracing wages. Behind this theory is, income must be recognized somewhere. Under a minimum connections theory, citizens of another state would be allowed evade taxes within the jurisdiction of its employer, based solely on it requirement to perform services outside of that jurisdiction. The visiting state would also be burdened with the requirement of determining how to apportion income earned in the visiting jurisdiction.

A “Jock Tax” works similarly to an income tax withholding requirement in any jurisdiction that has a requirement for wages earned within its jurisdiction. But there is a major difference, between regular withholding requirements and a “jock Tax’s” holding requirement. States create legislation specifically to specifically identify, professional athletes. Regular employees, who are subjected to travel during the course of their employment are usually allowed a grace period (which varies from state to state) before their employers are subjected to such a withholding requirement. 

II. 14th Amendment

1. Due Process

 “No State shall . . . deprive any person of life, liberty, or property, without due process of law.”

The process by which these “Jock Taxes” are implemented are not in violation of the Due Process of law, from a procedural standpoint. Many of these taxes are enacted taking the appropriate measures, and are enacted through the legislative process. But do they allow for those who are most likely to bear the brunt of such taxes an opportunity for any grievances to be heard? This country was founded on such a lack of opportunity.

2. Equal protection

But a Due Process determination is also made using substantive considerations. This done on a Federal level, as the purpose was to determine if a law was in violation of the Constitution, even where it was enacted lawfully. The Substantive considerations have been adjudicated on numerous occasions and are used to address issues where there is a disparate impact on a protected class of citizens of a state and ultimately looks to the end result of a law that has been implemented, in determining if said law may or may not be unconstitutional.  Equal protection works many ways, but there are two ways that I would like to address. 1) Citizens- It protects its own citizens from discriminatory treatment; and 2) Protected Classes- It protects identifiable classes within the borders of that state, but citizens of another state, from discriminatory treatment. As "Equal Protection" applies to a taxing jurisdiction, it places a restraint on treating a taxpayer differently based on some arbitrary classification, that has no compelling State interest. As this power relates to its own citizens, 'you work here, you pay your tax here, and we can't charge you more in tax without a legitimate purpose…'   As this power to tax relates to protected classes, 'we allow you to work here, you pay your tax here, and we can't charge you more in tax because you're (class-member), without a legitimate purpose…' 

3. Should Athletes a be considered a protected class?

Athletes are not a protected class. But the argument that they should be has gradually grown. With differing Name, Image, and Likeness (NIL) Laws sweeping throughout the states, there are a growing number of individuals who  have come to fall under the differing jurisdictional laws. And with state flirting with the idea of earning from collegiate athletes being exempt from taxation on the state level. I think it may be the right time for the Federal government to step in and make the determination that Athletes be treated as a Protected class. The main idea behind creating protected classes, was to address disparate impacts that were founded with discriminatory intent. As it applies to a "Jock Tax" the disparate impact is that of being held to a different standard than take advantage of selective enforcement for income tax withholding for employers and reporting for employees, because they are not highly identifiable or highly visible. Any such restriction has been found to be in violation of the Constitution, which gives United Stated Congress the power to regulate commerce among the states. Legislation has been proposed, which if passes unchanged, sets out to exclude Professional Athletes, Professional Entertainers, Qualified Production Employees, and Certain Public Figures, with specificity. I find this proposed legislation particularly interesting. While this may seem, innocuous and serve to keep those workers mentioned subject to a State's taxing power, this would be Federal Law. Which may mean that it will have the effect of creating proof that athletes, entertainers and the like are and have been subjected to discrimination based on their membership of a clearly identifiable class.

Has the Federal Government Meant to Occupy this Space?

4. Standards of Review

There typically are two Standards of Review in determining is a law discriminatory. Rational Basis, and Strict Scrutiny. The Rational Basis standard is probably the lowest hurdle, as it only requires that a law be rationally related to a legitimate state objective. Under a strict scrutiny determination, there must be clearly identifiable class which has been the law has been enacted against, for which there is not legitimate state purpose. The difference between Rational Basis and Strict Scrutiny is that there be a clearly identifiable class. Athletes, entertainers and the like, are not a clearly identifiable class (yet).

5. What is a legitimate purpose?

For both of Standards of Review, the typical legitimate purpose which a state introduces are general. But that legitimate purpose must not be too attenuated or descriptive, and have a rational relationship between the benefits provided in return for the imposition of the tax., otherwise, the tax may be found unconstitutional. Typical purposes are to generate revenue to for things like, furnishing equipment their firefighters, and make investments in the infrastructure. And in turn, those jurisdictions provide athletes, things like safety, the opportunity to use the roads from while they are in the state, arenas for them to showcase their talents and the opportunity to earn money from its citizens which that state has a duty to provide protections for.

III. Why hasn’t this issue been address already?

1. There is no Federal equivalent (Statutory).

There is no Federal Law that is in place that make "Jock Taxes" unconstitutional. States are granted policing powers and among those powers is the power to tax. The state can allocate the tax to smaller municipalities of the state, or reserve the power for itself. So, for a tax like this to be struck down, there must first be Federal Legislation that addresses taxation of this sort, and then a State must be in violation of that Federal law. Which is why H.R. 1393 is so interesting.

2.There has been no Supreme Court rulings (Common Law)

a. Lack of Jurisdiction

i. Subject Matter Jurisdiction

Since all potential complaints of an unconstitutional law, are likely to arise only from actions that occur within a particular State, it must be determined if there is some intentional tort that has arisen for there to be appropriate standing that would remove a case from a States Courts jurisdiction to within the Federal Courts Jurisdiction. Generally, there is an inherent desire to make specific references to the facts of a case. When specific facts of a case are used within a state court, a Plaintiff waives the right to move the case to Federal Court, asserting that the state court in which the case is being heard has jurisdiction on the matter.

ii. Personal Jurisdiction

This type of jurisdiction is used in determining where a party has availed itself to the state for which the relief is sought. Simply put, a party cannot be held and in violation of laws of a place they have never been exposed to, when the harm does not have a substantial relationship to that particular jurisdiction.

b. Judicial Stripping

Even where a Federal Courts have both Subject Matter and Personal Jurisdiction on a matter, Congress has the power to determine where cases are heard and may remove some cases from Federal Courts, and any of its judiciary tribunals, where Federal Jurisdiction is not in clearly in a Senior position.

This probably isn't the issue, as it relates to a "Jock Tax", as for a Federal Court to be subject to this Congressional power, there must be either a Federal Statutory provision or a case that has become within the Federal Judiciary's Jurisdiction. But this Judicial Stripping power may provide some guidance as to why the NLRB left many people confused for its refusal to assert jurisdiction in the Northwestern Football Union case, particularly since the NLRB had already began to hear testimony.   

But this issue has been somewhat addressed under IRC

IV. Current Legislation-H.R.1393

H.R. 1393-Mobile Workforce State Income Tax Simplification Act of 2017 Federal Legislation that looks to create uniformity in the way employers are required to withhold taxes of employees. Considering the purpose, of H.R. 1393 is to create uniformity, it may be subject to a Strict Scrutiny Standard of Review and not that of the more easily determinable Rational Basis Standard of Review. Should Strict Scrutiny apply, the main question that must be addressed is, what compelling interest does the Federal Government have for creating a law that explicitly identifies Professional Athletes and Professional Entertainers and Qualified Production Employees, and Certain Public Figures, as a group for which the term employee shall not apply?

I believe the purpose of this bill is meant to eliminate encumbrances filing for those required to file taxes in multiple jurisdictions, that has different statutory requirements for filing state income tax. That is a great idea. The purpose for these states implementing tax withholding requirements is to ensure aren’t taking their money and running. The requirement that there be a rational relationship and that relationship not be too attenuated is an argument a Plaintiff would bring, and is defensible by a state, not a reason to implement legislation.

A30-Day window is appealing, easy to remember, and maybe even incentivizing, as it relates to the withholding requirement for transportation of interstate workers. In practice, I believe this limitation will have the effect of making it more economically feasible for a company to move laborers around without having to determine what the withholding requirements are. I can imagine a large airplane manufacturer sending a highly skilled worker to fix a problem on the production of its latest aircraft, or a farmer who specializes in collection and packaging of perishables, taking advantage of this law by, moving his employees around without having to worry what the holding requirement are. On its face it appears good for everyone.

But, I still find this bill discriminatory in that it specifically identifies Professional Athletes, Professional Entertainers and the like, who are highly visible and highly compensated and circumscribes rights which would be entitled to all other employees, without first describing what compelling government interest this circumscription stands to serve.

V. Solutions

1. Commerce Clause- Article 1 Section 8 Article 3

Congress shall have the power . . . [t]o regulate commerce…among the several States…"

I believe H.R. 1393 - Mobile Workforce State Income Tax Simplification Act of 2017 invokes this power, in support of assuring that this law does not violate the procedural due process requirement. But the circumscription of Professional Athletes, Professional Entertainers, Qualified Production Employees, and Certain Public Figures, requires more analysis. But this bill does have an effect of other employees of Professional Sport organizations. One of the most crucial criticism of the "Jock Tax" is that it sweeps up all parties the moment they enter the jurisdiction, regardless of their ability to pay. This is most applicable to support staff who aren't highly recognizable, or compensated. This bill would provide them with somewhat of a relief.

2. States with No Income Tax

States like Texas and Florida, do not have a tax on wages earned within its borders, and I am sure there is a legitimate government interest. I would like to think one of those government interest includes having more disposable income for those who earn money within the state. If people have more money, people will spend more money. When people spend more money, the economy within its borders grown, and who doesn’t like a big economy? The group of those who are not citizens of no-income tax states, still are afforded the same no- income tax treatment on wages, or else that state would be in violation of a substantive analysis of the Equal Protection clause. But why should these states continue to afford no-income tax treatment? Allowing money which would remain untaxed in its state, on the hopes that it would be spent on creating a more robust economy, only to be taxed in another state (potentially) undermines that legitimate government interest.

3. Special Industry Treatment

In the insurance industry, there is something called a Retaliatory tax. This type of tax allows for insurance companies to have a step up in its tax liability, when doing business outside of its state of residence would allow for a significant tax break. For instance. Insurance Company A, has a residence in State A, with a 10% tax rate on insurance premiums sold within its borders, Insurance Company B has a residence in State B, with a 5% tax rate on all insurance premiums sold within its borders. If State B has a legitimate interest in creating a competitive atmosphere for all insurance companies doing business within its borders, Company A will not use State B's tax rate as an incentive to do business within its borders. Sure, a retaliatory tax of this nature would be nothing more than speculative, and too remote, as there is no way to determine, what the no-income tax treatment on wages has on a state's economy. But it must be considered that Professional Sports teams, particularly its athletes are governed by Collective Bargaining Agreements, which outline minimum and maximum salary number for those players. This information is publicly available, so even though there is no way to tell how much money is walking out of a no-income tax state due to it being taxed elsewhere, it is easily determinable as to how much tax savings a visiting Professional Athlete has incurred based, being allowed to work in a no-income tax jurisdiction.

I find this topic interesting particularly in state where cost of living is involved in negotiating salaries. Considering that Collective Bargaining Agreements are only contract which can be breached, which have their own remedies, I can see a case for a State that has high income earners wanting to trace that income to it State. There is an opportunity in kind non-recognition treatment for athletes from visiting teams. 

VII. In Closing

It may be likely that there is some animosity towards high income earners, and no matter what side of the political spectrum a person finds themselves on, (outside of those who earn those high incomes) there is one thing most can agree on, which is those who can bear a higher tax burden should do so. This is evident in our culture, and in my opinion, has become somewhat of an honor. But this is not the issue, the issue is, "Are those who are highly compensated, (or highly visible) subject to a disparate treatment that equates to discrimination based on the profession they’ve chosen?” It is nearly impossible for all income earners to be treated the same, States have the right to promote its own interest, and provide either state or local tax incentives as a tool to effectuate such, but to discriminate against highly compensated or highly visual individuals, based largely on the idea that they should be honored to do so is disturbing.