February 13, 2003
A Tax Coming To A State Near You
In today's "Fiscally Fit" column in the Wall Street Journal (paid subscription required), Terri Cullen writes about the growth in the "Jock Tax," a device many cities and states around the country are using in order to close budgetary shortfalls on the backs of professional athletes:
[C]alifornia's so-called jock provision dates back to the early 1980s, "when baseball free-agency started to bloom," says Patrick Hill, public-affairs spokesman for the California Franchise Tax Board. However, it wasn't until the early '90s that the state stepped up their collection efforts. By early 2000, the tax had gained so much momentum that Wall Street Journal reporter Sam Walker detailed the tax woes of Alex "A-Rod" Rodriguez, at that time the richest athlete in team sports. After reading about the Texas Ranger shortstop's much-publicized jock-tax burden, fans nicknamed him "Pay-Rod."
California's success at collecting the jock tax has prompted many states and municipalities to follow suit, and the list of states imposing the tax continues to grow. In 2001, Wisconsin took in more than $11 million in annual revenue from jock taxes.
Leading the nation in the "Jock Tax" rate are California and the District of Columbia -- both clocking in at 9.3%. Now, sure, it's easy to laugh and not care about taking another cut off the top of the salary of a multi-millionaire athlete. Unfortunately, plenty of states are expanding the reach of the tax to include other professions -- notably doctors, lawyers, architechts and other highly-compensated business executives.
One bonus for some collectors: while your state may allow you to take a credit on your return for taxes you pay on income earned out of state, residents of states that don't collect an income tax can just kiss that money goodbye.
Of course, while some tax collectors are patting themselves on the back for finding a new source of revenue during a time when collections are way down, we all know full well that the states who work hardest to exploit the provisions in the tax laws that allow these collections will eventually drive away business. Sure, it's one thing when Mike Piazza has no choice but to play in Dodger Stadium when he's on the road. But it's another thing entirely when a profession can choose to avoid a state altogether in an attempt to avoid an unreasonable tax.
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We've seen athletes and sports flee high income tax nations in Europe. I can't believe this won't make it harder for teams in high tax states to attract free agents.
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at February 13, 2003 09:21 PM
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