State Taxes - Professional Athletes

[Corduroy Frog]

It is generally accepted that a construction crew headquartered in a given state can travel to another state, work for a week, then come home. The result is that 4-5 days in another state does not constitute source income from that state. At least I've never seen such a situation result in state taxable wages to any state other than the home state.

One my friends has a brother who played for the Detroit Lions and Green Bay Packers over a 10-year career. And during this time never lived in either Michigan or Wisconsin. His salary was such that he made (for purposes of discussion) appx $250,000 for every game, even including exhibition games. Except for the high income, his situation did not differ from the construction worker mentioned above, so I don't know why he would incur taxation in every state he played, but he did.

Supposedly, this football player had to file 10-12 states every year, presumably with resident state credits for taxes paid in other states. And the states differed from one year to the next. He said his tax preparation fee ran into the thousands.

One of my clients has a son who may (or may not) be drafted into the NFL, and has discussed retaining me as his tax preparer. I have a couple Scorp shareholders who file in 8-9 states so this is not new to me. Except for the level of income, what is the difference between the construction worker mentioned above and the professional athlete? Any other discussion related to state taxation of professional athletes would be appreciated.

[TAXNJ]

Fun

This is one of many articles. Sounds that it will be an interesting client. Good luck

http://blogs.hrblock.com/2013/09/05/paying-taxes-in-every-state-taxes-the-pro-athlete/

[ATSMAN]

It is generally accepted that a construction crew headquartered in a given state can travel to another state, work for a week, then come home. The result is that 4-5 days in another state does not constitute source income from that state. At least I've never seen such a situation result in state taxable wages to any state other than the home state.

One my friends has a brother who played for the Detroit Lions and Green Bay Packers over a 10-year career. And during this time never lived in either Michigan or Wisconsin. His salary was such that he made (for purposes of discussion) appx $250,000 for every game, even including exhibition games. Except for the high income, his situation did not differ from the construction worker mentioned above, so I don't know why he would incur taxation in every state he played, but he did.

Supposedly, this football player had to file 10-12 states every year, presumably with resident state credits for taxes paid in other states. And the states differed from one year to the next. He said his tax preparation fee ran into the thousands.

One of my clients has a son who may (or may not) be drafted into the NFL, and has discussed retaining me as his tax preparer. I have a couple Scorp shareholders who file in 8-9 states so this is not new to me. Except for the level of income, what is the difference between the construction worker mentioned above and the professional athlete? Any other discussion related to state taxation of professional athletes would be appreciated.

I don't think that is universally true with respect to construction or tradesmen. I have several clients (construction, steelworkers, electricians and plumbers) who will have a second or more W2 from a neighboring state for the few jobs they did in that state. One year this steelworker had 5 W2 from most of the states in New England. He is a union member and the union decides which job he will do on a given day!. I had to get his employer to breakdown the wages for each state because he also worked in NY and NY requires 100% of federal taxable wage be reported as NY state wage!

[Lion]

Your construction worker could owe a tax liability in many states and have a filing responsibility in many states. You need to read the instructions for nonresident returns for each state in which he worked. Some states have a minimum number of days or minimum amount of money before a return is required. If the company has nexus, then any employee working even a day in that state owes a return in states like NY. Just researched for a client the rules in AL; step foot in AL for work and you owe a return. Do you have the All States edition?

[TAXNJ]

Agree with Lion

Agree with Lion's post.

Never heard of a "construction generally accepted exception" otherwise many occupations would apply for it. If you know of one please let me know. I will have many amended returns and happy clients.

[JohnH]

I think most states with an income tax will want to tax income earned in their state (except for amounts below a certain minimum threshhold). But their ability to do so is limited by self-reporting by workers or their employers, and if the amounts are not significant then there's no incentive for the states to go after them. We have a theme park in Charlotte which has the state line running through it, and workers there receive W-2 forms showing allocations of their earnings & withholding based on which state in which they spend their time during each day.

With professoinal athletes, entertainers, and other high-income occupations there is enough at stake that the states will demand their share of tax on the person's earnings, and the penalties for non-reporting are high enough to cause everyone to do it right most of the time. I prepared returns for a professional athlete for a couple of years, but finally recommended to him that he find a CPA or EA who specialized in this area. Turns out there were several in our town, and some of his teammates gave him good recommendations. Nice guy, but I was glad to be rid of the hassle. I think his W-2 form ran to 10-12 pages, and I would always wonder whether I had handled all the states correctly when I had finished. There was so much money at stake that the risk bothered me, because even a small error on a percentage basis ballooned to a large amount of money and would affect at least two states. This type of client carries some unique risks.

[Corduroy Frog]

State Farm

Most of the discussion seems to center around temporary construction workers NOT being exempt unless below filing threshholds. It is another matter to get employers (even large employers) to segregate W-2 wages into different states. I take the position that if the employer is unwilling to make this segregation, then I will absolve my reporting responsibility to that of the employer.

I know of several cases for construction workers. Tennessee has no income tax, but it is long and narrow and you are never far away from one of eight neighboring states, ALL of which have income taxes.

I have one guy who resides in Louisiana and keeps coming back to me. He is a claims adjuster for State Farm, and in the last few years he has been working mudslides in California, tornadoes in Illinois, the Gulf Oil spill (three states), and Hurricane Sandy on Long Island. His W-2 from State Farm shows his entire salary as being Louisiana wages.

??

[TAXNJ]

Good points

Most of the discussion seems to center around temporary construction workers NOT being exempt unless below filing threshholds. It is another matter to get employers (even large employers) to segregate W-2 wages into different states. I take the position that if the employer is unwilling to make this segregation, then I will absolve my reporting responsibility to that of the employer.

I know of several cases for construction workers. Tennessee has no income tax, but it is long and narrow and you are never far away from one of eight neighboring states, ALL of which have income taxes.

I have one guy who resides in Louisiana and keeps coming back to me. He is a claims adjuster for State Farm, and in the last few years he has been working mudslides in California, tornadoes in Illinois, the Gulf Oil spill (three states), and Hurricane Sandy on Long Island. His W-2 from State Farm shows his entire salary as being Louisiana wages.

??

You raise good points in your first paragraph (compliments to you). As far as the professional athlete issue, see if the attached provides any more insight for you of what may be involved.

It would be an interesting potential client that would require much tax and financial expertise and would have the resources to pay for it. Best of luck to both of you.

http://www.accountingweb.com/article/nfl-players-versus-irs-its-tough-tackle/222629

[TAXNJ]

Nexus

Most of the discussion seems to center around temporary construction workers NOT being exempt unless below filing threshholds. It is another matter to get employers (even large employers) to segregate W-2 wages into different states. I take the position that if the employer is unwilling to make this segregation, then I will absolve my reporting responsibility to that of the employer.

I know of several cases for construction workers. Tennessee has no income tax, but it is long and narrow and you are never far away from one of eight neighboring states, ALL of which have income taxes.

I have one guy who resides in Louisiana and keeps coming back to me. He is a claims adjuster for State Farm, and in the last few years he has been working mudslides in California, tornadoes in Illinois, the Gulf Oil spill (three states), and Hurricane Sandy on Long Island. His W-2 from State Farm shows his entire salary as being Louisiana wages.

??

Business Nexus. As LION mentions "nexus" and how it may relate to your points, it maybe further explained in the links below. Does it help?

http://biztaxlaw.about.com/od/glossaryn/g/nexusdef.htm

http://www.salestaxinstitute.com/Sales_Tax_FAQs/What_is_nexus

[ATSMAN]

Most of the discussion seems to center around temporary construction workers NOT being exempt unless below filing threshholds. It is another matter to get employers (even large employers) to segregate W-2 wages into different states. I take the position that if the employer is unwilling to make this segregation, then I will absolve my reporting responsibility to that of the employer.

I know of several cases for construction workers. Tennessee has no income tax, but it is long and narrow and you are never far away from one of eight neighboring states, ALL of which have income taxes.

I have one guy who resides in Louisiana and keeps coming back to me. He is a claims adjuster for State Farm, and in the last few years he has been working mudslides in California, tornadoes in Illinois, the Gulf Oil spill (three states), and Hurricane Sandy on Long Island. His W-2 from State Farm shows his entire salary as being Louisiana wages.

??

Some employers will not segregate the income unless the employee demands it. In my client's situation who had NY W2 with 100% of his Fed taxable income, the employee had to show the work order slips to the payroll people and they printed a nice report showing the dates, state, hours worked, pay rate etc. So if you want to help your clients get it correct the first time, show them what they need to do.

It is very frustrating when a client receives a notice of intent to levy taxes and fine from a state and client says I told you I worked in that state and you told me don't worry I don't see a W2??

For my Sch C clients I have them give me which states they sold their goods or services. Several years back one of my landscaping clients was snowplowing a Mall in neighboring CT and he did not tell me about that. Guess what? 2 years later state of CT sent a notice of intent to levy!

[Corduroy Frog]

More on this

Thanks to all who have participated, and thanks to our NJ friend for the links. I will speak to some of the responses.

Discussion about nexus as applying to Sales Tax is a total different issue. Very discussion-worthy because of the attempt by various states to fashion their own definitions of nexus to grab revenue. But not related to the state wages issue. The wages issue is contentious enough that we can focus on it without introduction of new issues. But I do appreciate any and all discussion.

ATSMAN brings up what can happen when an employer fails to designate state income. I'm not going to dispute whether the taxation was right or wrong, but rather what our responsibilities are as preparers. My guy from Baton Rouge worked claims in NY, CA, and IL and had all of his wages designated as Louisiana income. The only party with the resources to split this income is the employer. (The taxpayer probably has a rough idea at best). I certainly did not. Furthermore, if I had taken upon myself to split the income, the taxpayer would get an ugly letter from Louisiana for not claiming ALL of his salary as LA wages. The employer is a Fortune 500 company with resources enough to make the split.

ATSMAN says an employee can end up getting a levy for failing to report income in a foreign state. I have to ask about the state somehow finding out that the guy worked there if it wasn't on his W-2? If they are going after the employee, why are they not first going after the employer for failing to report? My guess is it is easier for a state to bully an employee and much more difficult to go after the employer. In fairness to ATSMAN, the example he gave was for a self-employed invididual, in which case I agree the individual should bear the responsibility for the split.

The issue takes on a heightened magnitude in the Northeast, where states with small geographical areas and high tax rates often slug it out with each other. The short distance allow them to engage in espionage, and some of these states hate each other. I once had a telltale conversion with the Rhode Island revenue people, when I asked the lady if they had reciprocity with Massachusetts. Her response was "Not just No but **** No! We don't have reciprocity with Taxachusetts!!"

Those of us who love no state taxes should consider Nevada. No income tax. Not even a corporate tax!!

[TAXNJ]

Solution

Thanks to all who have participated, and thanks to our NJ friend for the links. I will speak to some of the responses.
......,,..

Those of us who love no state taxes should consider Nevada. No income tax. Not even a corporate tax!!

Solution: If 47 of us get elected - one in each of the 47 states that still have personal income tax, we can eliminate that tax.

Let us know your decision on the Potential NFL player.

[Corduroy Frog]

42-43 states

Hi NJ -

Be advised of the states that do not have income taxes - WA, NV, TX, FL, TN, SD, NH, AK. Tennessee has a strange tax on Dividends, I'm told the NH has some kind of tax but not a general income tax.

I'll take on the football player, IF he gets drafted and makes a team, and IF he chooses me. He probably will, but the athletes get recommended often to state tax specialists.