As Ben Frankin once said, “only two things in life are certain: death and taxes”. That statement is as true today as it was when it was made in 1789. However, the process of filing taxes for the average middle-class family is a much less daunting task than it is for multi-million dollar professional athletes. And, with the April 15th deadline for filing federal and state taxes upon us, it is only fitting that we take a look at the unique tax issues facing athletes all over the country. Even if you are a multi-million dollar athlete you need still to do a Voluntary Disclosure while you are doing your taxes.
Unlike the prototypical American family, professional athletes are often required to pay taxes in multiple states in which they earn their income. This practice of levying income taxes specifically designed to target professional athletes began as early as the 1960s, but became much more widespread after California sought to tax Michael Jordan and his Chicago Bulls after they beat the Lakers in the 1991 NBA Finals. Once California decided they were going to impose state income taxes against the Bulls’ players, Illinois lawmakers passed their own legislation that would target the Lakers’ players and all other visiting athletes. This responsive Illinois legislation has since become known as “Michael Jordan’s Revenge”.
Since 1991, additional states have joined Illinois and California in imposing similar tax laws including Arizona, Colorado, Indiana, Louisiana, Maryland, Massachusetts, Ohio, and Pennsylvania. As these tax laws have continued to evolve some local municipalities have even began imposing their own city taxes on visiting athletes. For example, Cincinnati, Cleveland, Kansas City, Pittsburgh, and St. Louis all impose a city tax on visiting athletes on top of the income tax already imposed on the visiting players by the host state.
These laws have been highly criticized as being the definition of “taxation without representation”. Each of these visiting athletes pay taxes to states in which they have no vote or say in how their tax money is spent. Tax lawyer, Jonathan Nehring, who writes for Taxaball.com said, “[i]t’s going to be hard to find a lawmaker that has sympathy for a few thousand or so people who make a lot of money and don’t carry votes”. So, if the state and local lawmakers are not going to be the voice of these unrepresented individuals, then who will?
Enter Mark Goldstick, C.F.O. of Priority Sports & Entertainment. Mark, and others like him, spend their time learning all of the different nuances to the federal, state, local, and even sometimes international tax codes that apply to their clients. Mark is a certified public accountant based out of Chicago, Illinois. Mark was working as an accountant in Chicago when one of his fraternity brothers started Priority Sports & Entertainment in 1985. By 1998, the decision to include tax services as part of the agency’s client representation package was made. That year Goldstick prepared taxes for eight of Priority’s clients. Three years later in 2001, that number had grown to sixty. This year Goldstick estimates that he will prepare the taxes of seventy-four athletes. This group of athletes range from NFL players to the NBA and international basketball leagues. Each league presents its own issues. For instance, NBA players earn a portion of their income in Canada each year while FIBA players have earned income in a multitude of foreign countries throughout the fiscal year. Over the last few years the NFL’s attempt to expand its brand into Europe has also introduced the athletes participating in the London games to international tax laws. This additional complication can be somewhat alleviated by professionals such as http://www.portebrown.com/international-tax-services.html, however, that isn’t to say the process is in any way easy. There are many businesses that work internationally that require the support of international tax services since they have to abide by international tax laws. Some might find they require help from Accounting firms in Melbourne or would examine the option of looking for accountant help more local to them.
Kevin Mawae, a former center for the New York Jets, has addressed the need for athletes to have people like Goldstick in their corner. After an audit required Mawae to prove he was a Louisiana resident for tax purposes despite being under contract with the Jets Mawae said, “I couldn’t imagine walking into an H&R Block or a Walmart and just asking someone to do my taxes.”
Goldstick noted that although a portion of his clients’ 2014 tax returns have already been prepared and filed he expects to file extensions on behalf of a majority of his clients. He summed this up by simply saying – as all accountants know firsthand – “it’s going to be a long season”.