In a case that could have repercussions for the taxation of professional athletes, the Supreme Court of Ohio handed down a ruling that provoked a response citing the New England Patriots’ “Deflategate” scandal.
The case involves Hunter Hillenmeyer, a former linebacker for the Chicago Bears, who challenged the method by which Cleveland’s municipal income tax was imposed on his earnings during tax years 2004 to 2006. In each of those seasons, the Bears played one game in Cleveland, for which Hillenmeyer was present in Cleveland for two days.
For each of these years, the Bears withheld and paid the municipal tax from his compensation according to Cleveland’s allocation method, known as “games-played,” under which the taxable portion of a professional athlete’s income is based on the number of games the athlete played in Cleveland in relation to the total number of games played that year.
The Supreme Court of Ohio determined, in an opinion filed on April 30, 2015, that the “games-played” method of allocating a nonresident professional athlete’s income to the city resulted in the taxation of income from work performed outside of the city in violation of the player’s right to due process.
In a motion to the court to reconsider its decision, the City of Cleveland argued that the court’s finding is in conflict with U.S. Supreme Court precedent that an apportionment method may be based on any measurement so long as the measurement is reasonable and that no single apportionment method is required.
Additionally, the motion noted that the Supreme Court has held that states and local jurisdictions have wide latitude in the selection of apportionment formulas and that a formula-produced assessment will only be disturbed when the taxpayer has proved by clear and convincing evidence that the income attributed to the state is in fact out of all appropriate proportion to the business transacted in the state or has led to a grossly distorted result.
The motion makes reference to the recent “Deflategate” scandal in which the New England Patriots was accused of deflating footballs during an AFC Championship game in January against the Indianapolis Colts.
“And the suggestion that a single practice day, meeting day or even travel day equates to a game day is wholly unreasonable,” attorneys for Cleveland wrote on May 11. “The NFL has just completed its investigation of Deflategate,’ the controversy where the New England Patriots and its star quarterback Tom Brady have been implicated in regards to deflating footballs (which are apparently easier to throw and catch). If Tom Brady is ultimately disciplined as a result of this controversy with a suspension—he will clearly be suspended from games. And as Cleveland has repeatedly emphasized in this case, every important right or benefit that a player may be eligible to receive like free agency, player minimum salary, retirement benefits, etc., is based on one thing—the games, not practice, not meetings, not promotional events or anything else that NFL teams may require a player to do.”
The NFL announced Monday that Brady would be subject to a four-game suspension and the Patriots will be fined $1 million and lose their first-round draft pick in the 2016 NFL draft. Brady’s agent has said he planned to file an appeal.
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