States Are Looking at Professional Athletes, According to Tax Attorneys

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A recent CNBC report by Andrew Osterland revealed that state tax departments are spending the 2020 tax season looking more closely at professional athletes than ever before.

It is understandable why state tax coffers are lighter than usual. The sales tax usually incurred at restaurants? Nearly vanished for most of the year. The state taxes from movie theaters, live music venues, bars, and nightclubs? Close to zero.

So, of course it makes sense that the state tax departments would look for other ways to make up the shortfall.

But why professional athletes being targeted?

Here are three reasons why this might be:

  1. In regular years, athletes would pay in multiple states. Being on the road for 80 games a season means that Major League Baseball players are staying in hotels, eating in restaurants, renting cars, and spending their per diems in many states. One estimate is that a professional baseball player might need to file state taxes in more than twenty states. This makes the typical tax lawyer blanch when dealing with an athlete’s returns.
  2. Many athletes live in low-tax states. Texas and Florida are among the states that do not require their residents to pay income taxes. Therefore, such states are attractive homes for high-income athletes. When the NBA created a bubble to finish the 2020 season, they made that bubble in Orlando, Florida. Surprise, surprise.
  3. Training gets tricky. If coaches and trainers work over Zoom, and are in different states from the athletes, who gets the taxes? The state where the coach lives, or the state where the player lives?