State Tax Alert
By: The Attorneys of Tenenbaum Law, P.C.
As published in NYSSCPA Nassau Chapter Newsletter – May, 2001.
Just played a game at Madison Square Garden? You could be liable for New York State income tax. You’ve got apartments and houses across the USA, and you don’t own or rent even a closet in New York City. New York State doesn’t mind – it will tax you as a nonresident.
This is the side of sports income that can really make a difference in how much goes in your pocket, and how much goes to the government. Every state has its own laws; and there may be special regulations designed specifically for professional athletes. In this article, we’ll use the laws of New York as an example.
New York has a targeted “athlete” rule which considers all days in New York to be equal, as long you spent them doing something team-related. Whether you were here for an exhibition game, or for the championship, or even if you just went to a team meeting, New York counts it as a “duty day” if you were “rendering services” to the team – and there’s a good chance you’ll be taxed on that time here.
By the way, the “athlete” rule is not just for players; managers and trainers are subject to the same guidelines.
The amount earned on a particular duty day is not important either. New York wants to tax a percentage of income, based on how many of your total duty days during the year were spent in New York. So, for example, if fifteen percent of the duty days are spent in New York, then fifteen percent of the income earned is subject to New York state income tax. This means that even one game could cost you a lot of state income tax. Suppose you came to the Big Apple a few days early, and trained at the team’s facilities. These count also as New York duty days. For example, a player who travels to the state as the team’s representative in an all-star game, usually has to count the days spent on practice, the game, and meetings in the state, as in-state duty days. The more duty days spent in state, the higher the taxable percentage of income – and consequently, the more tax that must be paid.
Pay attention to travel days; these may not be duty days in a particular state, but they probably count towards the total overall duty days. Look out, too, for days doing rehabilitation exercises. Like training days, these may count as duty days within the state – if you use your team’s in-state facilities.
If you come as a tourist, however, you get an extra dose of New York hospitality: purely tourist time does not count as duty days, and won’t affect the tax you pay as a nonresident.
Beware of a sneaky surprise when figuring out your duty days. The state is not looking at the basketball season, but rather, the tax year. These two are not automatically the same. One calendar year covers parts of two basketball seasons. It’s a good idea to talk to your accountant about this.
So far, we’ve only been discussing a nonresident. What if a state questions whether you are, in fact, a resident? What might the state be looking at when making that determination? Using New York again as an example, once you are considered a resident of New York, all of your income is subject to tax (not just a percentage, as with a nonresident), regardless of where it was earned.
First, let’s look at how much time you’re in the area. If you have a “permanent place of abode”, such as a house or apartment, and spend more than 183 days of the tax year in New York, you can be deemed a New York State resident.
On the road a lot? Not reach that six month minimum? You can still be deemed a resident, if you are domiciled in the state. In the eyes of New York State, you can have more than one residence, or place to live, but only one domicile – your true, permanent home, to which you always intend to return.
To decide this, the State looks closely at five chief factors. Hardest to quantify is whether the place is “home”: and the State will consider your feelings and thoughts on that issue. Next, the State examines your business ties in the area, how much time you spend in and around your house or apartment, and whether you keep “near and dear” possessions there, such as favorite trophies or your autograph collection. The final prime factor is whether you have local family connections.
So, use that personal organizer and keep track of where you were and what you did. It could mean the difference between being taxed on all or only part of your income. It could even help determine how much of your income is taxed in a particular state. Remember, it’s not just where you stay that counts – it’s also where you play.