LeBron James and Tim Duncan, by playing against each other in this year’s NBA Finals have lowered their ‘jock tax’ burden and if the series goes the full seven games they will lower them even more.
States that enforce non-residence income tax – also referred to as a ‘jock tax’ – allocate an athlete’s income earned in that state by taking the percentage of days in the state and dividing them by the total days in the season. Known as the duty day allocation formula, it takes into consideration all days and includes both the preseason and postseason. Therefore, for every day the season is extended by playoff games the duty day allocation to each state is affected.
What are the Tax Savings?
Both Florida and Texas, which are home to James and Duncan’s respective NBA teams, do not have any state income tax and the additional duty days actually lowers the taxable income allocated to states that impose non-resident taxes.
Miami Heat
During the 2013-14 NBA season the Miami Heat played 46 games (35 regular season and 11 post season) in 19 jurisdictions that impose a ‘jock tax’ on non-resident athletes. By playing in the NBA finals and specifically against the Spurs – it has the following effect on the Heat’s players “jock tax” allocation formula:
Jock Tax Days
46
46
Total Days
248
269
Allocation
18.55%
17.10%
When you apply this change in allocation to LeBron James 2013-14 Salary of $19,067,500 – to the 19 jurisdictions he plays – he is able to allocate $276,479 of salary out of states that impose the ‘jock tax’.
Jock Tax Days
46
46
Allocation
18.55%
17.10%
James Salary
$19,067,500.00
$19,067,500.00
Jock Tax Income
$3,537,021.25
$3,260,542.50
Difference
$276,478.75
San Antonio Spurs
During the 2013-14 NBA season the Spurs played 53 games (46 regular season and 7 post season) in 21 jurisdictions that impose a ‘jock tax’ on non-resident athletes. By playing in the NBA finals and specifically against the Heat – it has the following effect on the Spur’s players “jock tax” allocation formula:
Jock Tax Days
53
53
Total Days
243
263
Allocation
21.81%
20.15%
When you apply this change in allocation to Tim Duncan’s 2013-14 Salary of $10,361,441 – to the 21 jurisdictions he plays – he is able to allocate $172,000 of salary out of states that impose the ‘jock tax’.
Jock Tax Days
53
53
Allocation
21.81%
20.15%
Duncan Salary
$10,361,441.00
$10,361,441.00
Jock Tax Income
$2,259,830.28
$2,087,830.36
Difference
$171,999.92
With income tax rates ranging in the ‘jock tax’ jurisdictions from Indiana’s 3.4% to California’s 12.3% the allocated salary out of these jurisdictions ends up being a significant tax savings for both James and Duncan.
ALAN POGROSZEWSKI is an Assistant Professor of Sports Studies at St. John Fisher College and the President of his own tax consulting business whose clientele include professional athletes performing services on three separate continents. Prior to accepting his position at St. John Fisher College, Mr. Pogroszewski was the Vice President of Business Operations for Sports Consulting Group, a firm that specializes in the representation of professional hockey players. Mr. Pogroszewski received his M.B.A. from Rochester Institute of Technology in 1996 and his M.S. in Taxation from St. John Fisher in 2003.
©2014, Alan Pogroszewski. All Rights Reserved.