A couple months ago, we reported that two retired NFL players had each sued the city of Cleveland, Ohio, claiming the city unfairly and improperly taxed their incomes. After former Chicago Bears linebacker Hunter Hillenmeyer and former Indianapolis Colts center Jeff Saturday lost their separate cases and initial appeals, they asked the Ohio Board of Tax Appeals to review the arguments.
In each of their lawsuits against the city, Hillenmeyer and Saturday accused tax authorities of applying an unfair method of taxation to their incomes.
The two former players claimed the “games-played method” the city of Cleveland uses results in tax liabilities that are considerably higher than the more common method of calculating what is known as the “jock tax.” Under the games-played method, if an athlete is on the roster, Cleveland applies a 2 percent tax rate to the number of games played in Cleveland – preseason, regular season, and playoffs – compared to the number of games played by the team during the year.
In Saturday’s lawsuit, he pointed out that Cleveland taxed him for one game when he wasn't even in the city.
In response, Cleveland officials said the method the city uses is “certainly reasonable.” Changing to the more standard method would cost the city about $1 million per year in tax revenue.
In January, the Ohio Board of Tax Appeals heard the cases and ruled against Hillenmeyer and Saturday. In their conclusion, the board stated it found the tax method applied by the city of Cleveland had not violated the state constitution or case precedent, and that the city's unusual method of taxation was not unreasonable.
In Saturday’s case, the board also ruled that although he was taxed for a game in which he did not play, at a time when, due to injury, he did not travel with the team to Ohio, the city was justified in collecting the tax. To support this conclusion, the board cited part of a city ordinance regarding tax collection. Here is an excerpt from the ordinance:
The compensation earned and subject to tax is the total income earned during the taxable year, including incentive payments, signing bonuses, reporting bonuses, incentive bonuses, roster bonuses, and other extras, multiplied by a fraction, the numerator of which is the number of exhibition, regular season, and postseason games the athlete played, or was excused from playing because of injury or illness, in the taxing community during the taxable year, and the denominator of which is the total number of exhibition, regular season, and postseason games which the athlete was obligated to play under contract or otherwise during the taxable year, including games in which the athlete was excused from playing because of injury or illness.
CPA Robert Raiola, sports and entertainment senior group manager in the Cranford, New Jersey, office of O’Connor Davies, LLP, told AccountingWEB, “Cleveland uses the games-played method of taxation, while the state of Ohio and most cities use the duty days method, which generally results in lower taxes. While the courts can't always supersede the prevailing system, they can and should be challenged when unfairness is suspected.”
NFL Players Call Personal Tax Foul on Cleveland