Tax Update Blog: Permalink

« Previous · Tax Update Blog Home · Next »

Saving the right of states to pick the athlete's pocket

May 04, 2009

Another bill to make it harder for states to ding their temporary visitors is in the hopper in Congress. H.R. 2110, the "Mobile Workforce State Income Tax Fairness and Simplification Act," would eliminate many tax compliance headaches, reports Jim Maule:

Essentially, the legislation would prohibit a state from taxing the wages of nonresident employees who perform services in the state for fewer than 31 days, and would relieve their employers from any obligation to withhold income taxes on behalf of a state in which an employee performed services for fewer than 31 days unless the employee was a resident of the state.

But as a good professor, Dr. Maule zeroes in on the exceptions, which turn the bill into a great screw job for the athlete, musician or self-employed entertainer. He notes this provision of the proposal:

The term ‘employee’ shall be defined by the State in which the duties are performed, except that the term ‘employee’ shall not include a professional athlete, professional entertainer, or certain public figures.

In other words, this bill would fail to solve the Al Franken problem. Mr. Franken, Minnesota's senator-in-waiting, was embarrassed by the need to pay $70,000 in back taxes in 17 states for appearances as an entertainer or speaker. For a self-employed musician or entertainer, filing in 17 states is an expensive burden - and almost all the cost is time and professional fees. Living in Minnesota, Mr. Franken probably was eligible for a full credit for taxes paid in other states on his Minnesota return.

Dr. Maule dislikes the occupation based exclusion:

But does it make sense to permit states to continue taxing nonresident professional athletes and entertainers whose income is relatively small, considering the transaction cost to those individuals of complying with the income tax laws of dozens of states and filing tax returns with dozens of states? ... Would it not make more sense to tie the exclusion from the bill's protection to total income, so that professional minor league ballplayers earning survival wages are relieved of dealing with multistate income tax return filing, while high-income attorneys, architects, and other professionals who work for five or six days in each of fifteen states are treated in the same manner as high-income athletes or entertainers who perform for five or six days in each of fifteen states? In other words, why single out individuals on the basis of the name of their occupation rather than their income?

My view: Have the 31-day exclusion apply to everybody. Yes, it would keep California from taking a piece of LeBron James's salary when he comes to play the Clippers, but it would also keep Ohio from taxing Kobe Bryant in Cleveland, and it would save a lot of largely futile pencil pushing for everyone involved, including the states themselves.

Tags: Franken.state tax policy.