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Swing Batter Batter Swing…

The 89th Annual Major League Baseball (“MLB”) All-Star Game was hosted by the Washington Nationals in the backyard of our nation’s capital.

MLB fans were lined up as early as Monday morning as they waited in line to get a glimpse of their favorite players, such as Mike Trout, Aaron Judge and the D.C. area’s hometown favorite, Bryce Harper.  However, it was Alex Bregman of the Houston Astros who stole the show and was awarded with All Star MVP honors.

Economic leaders of “The District” are hopeful that this year’s Midsummer Classic will prove to have had enough firepower to surpass the dreadful impact that was experienced last year in Miami.  According to the numbers, the 2017 MLB game produced $70 million which was down 12% from 2016.

To achieve this feat, the District will have to focus on sales tax collections from tourists as the primary revenue source since D.C. does not impose a local income tax on ‘visiting’ MLB players who do not have permanent legal residency within the District.  On the other hand, all (if any) D.C.-resident MLB players appearing in the All Star game were subject to a District income tax rate as high as 8.95%.

No district income tax on All Star game services would seem like a very attractive incentive for D.C. non-resident players Mike Trout and Aaron Judge.  However, in reality (assuming both players are residents of states that impose a state income tax), each player will be required to fork over tax to their ‘home state’ for the privilege of playing in the All Star game.  Further, what is also interesting is how the All Star game appearance also affects the amount of tax each player pays to ‘other states’ for games that are played on the road.

Each All Star player, including Bryce Harper, computes their state tax liabilities based on the number of their allocable “duty days” during 2018 (which will include days worked at the 2018 All Star Game).  The duty days are not only limited to active participation in the game, but are also based on days which include team meetings, promotional caravans and practice – for example,  participation in the Home Run Derby.  There is an “out,” however, for all MLB players who have been selected as All-Stars but are unable to attend the game, not rendering services to their respective team in any manner and not being compensated for the game, will not be required to include these days as duty days.

As an illustration of the “duty day” method of computing state and local taxes, and the affect these duty days have on the total state and local tax cost (“the Jock Tax,” in this case) we will examine Bryce Harper’s 2018 duty days.  Ignoring spring training and assuming Harper’s total 2018 duty days are comprised of only the regular season (162 days) and the 2018 All-Star Game (2 days), the total 2018 duty days for Harper is 164.

2018 Bryce Harper Duty Days

Arizona 4
California 9
Colorado 3
Florida 11
Georgia 10
Illinois 3
Maryland 3
Missouri 4
New York 12
Ohio 3
Pennsylvania  13
Toronto, Canada 3
Washington D.C.  81
Washington D.C.- *All Star game  2
Wisconsin 3
Total 164

  

Washington D.C. does not receive any income tax revenue from Harper since he is a D.C. non-resident (Harper is a resident of Nevada, which also does not impose any state income taxes).  However, Harper does pay non-resident state income taxes to Arizona, California, Colorado, Georgia, Illinois, Maryland, Missouri, New York, Ohio, Pennsylvania and Wisconsin.

Harper’s 2018 MLB salary is $21,625,000 before incentive bonuses and other endorsement income.  Let’s consider the New York State upper tier tax rate of 8.82%.  Based on 12 duty days, Harper will have a 2018 New York State tax liability of $139,560 which computed as (12/164 X $21,625,000 @ 8.82%).  However, if Harper did not attend the All Star game and did not render any services, Harper would have a total duty day allocation of 162.  The 2018 New York State tax liability would now increase to $141,283 which computed as (12/162 X $21,625,000 @ 8.82%).  Thus, Harper’s performance in the 2018 All Star game cost the State of New York $1,723.
 
For purposes of simplicity, we only isolated the tax that New York State will forgo for Harper’s All Star performance which is similar to the computation of all other state and local taxing authorities.    It is also noteworthy to mention that all athletes, as well as individuals like you and me, will be subject to state and/or local income taxes earned while performing our compensation-related services across state lines even if you are a resident of a state that does not impose any state or local income tax.

Evan Waxman has advised professional athletes on tax matters relating to defining and maintaining or changing a tax home and tax domicile in order to resolve the identification of where an athlete resides for state income tax purposes.

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