It isn’t quite as common here in California, but on the East Coast, a person who lives in one state often works in a neighboring state. If both states have income taxes, does this commuter pay his resident state, his work state or both?
As with so many things related to taxes, this is something you don’t usually think about until you have the problem. The answer to the question is actually another question: Does your work state have a nonresident income tax?
California does, but only on income from California sources. Some states have reciprocal agreements with other states, so, while there is still paper work involved, you would be exempt from state income taxes there. Just to make matters more confusing, business travel may or may not be counted as nonresident income, depending on the state.
Of course, if you are a professional athlete, there is a whole different set of tax rules. For the most part, the tax is based on the number of “duty days” in the taxing authority’s jurisdiction: Play three games in two days in Anaheim, pay California taxes on the two duty days.
Cleveland, Ohio, takes a different approach. The city calculates nonresident players’ tax obligation by dividing the number of games played in the city by the total number of games the team played in a year.
For one retired player, however, the taxes he paid to Cleveland over a few years were excessive, and he appealed. He was present for the games, unlike the plaintiff in the case we briefly discussed in our last post. However, the tax obligation under the duty days formula and Cleveland’s formula were very different.
Each year, the team played one game in Cleveland, arriving the day before the game and leaving the same day as the game. Those two days, Cleveland said, represented 5 percent of his income. Using the duty days formula, the result was 1.25 percent of his income. Duty days include the games, the practices, training, strategy sessions and promotional activities. Cleveland was levying the tax as if all he did was play football.
The court agreed, ruling that Cleveland’s tax formula violated due process.
The two decisions may or may not indicate a shift in courts’ thinking about the jock tax. If nothing else, they remind the cities and states levying the tax to stick to the rules.
Source: Forbes, “Pro Athlete ‘Jock Tax’ Is Struck Down,” Robert W. Wood, May 1, 2015