As a huge Chicago Bulls and Michael Jordan fan, I’ve witnessed how Jordan transcended the sports world through his fame and skill. Though he is widely regarded as the best basketball player of all time, few may understand how influential he was. From a marketing, economics and financial perspective, he laid a foundation that has made many athletes very wealthy. On top of all that, I recently learned that he also changed tax law.
For years, it was not uncommon for states to have laws requiring tax for nonresident workers. States rarely enforced those rules on athletes, but in 1991, the State of California sent Jordan a tax bill for the days he worked in Los Angeles after he lead the Bulls to victory over the Lakers in the NBA finals. In retaliation, the Illinois Department of Revenue passed a law called “Michael Jordan’s Revenge” and sent tax bills to all of the California athletes who played in Chicago. Other states followed suit and now have large revenue streams from what is now known as the “Jock Tax.”
Some sports fans were upset with LeBron James for “taking his talents to South Beach.” Nevada residents might understand considering the financial benefits. Like Nevada, Florida does not impose a state income tax on its residents. In the case of Lebron and his $100+ million contract, he saves millions in state taxes by choosing to move to Miami. Likewise, when I heard defensive back Darrelle Revis was traded to the Tampa Bay Buccaneers, I thought he got a good financial deal!
Considering all this, I’m surprised more athletes don’t try to take advantage of having endorsement deals and home games tax free at the state level. If you have questions concerning allocating income to states or are a professional athlete, feel free to contact Ronnie Withaeger or one of the CPAs at Wallace, Neumann & Verville, LLP.