Wednesday, July 2, 2014

A Wisconsin jock tax for Bucks arena?

Lots of recent news regarding the Bucks arena question in the last week or so, and I wanted to discuss one proposal in particular.

1. Let's go back to something new Bucks co-owner Marc Lasry mentioned in a meet-and-greet with the media last week that some kind of tax or other public financing would be part of a new arena. And that any package will have to be figured out in the relatively near future.
Lasry, speaking at a joint Milwaukee Press Club-Rotary Club of Milwaukee event, did not specify a strategy for generating public support or approaching elected officials. He did mention that they plan to talk with “the governor” — Scott Walker — “and a number of other people.”

Lasry and Edens have pledged a combined $100 million to an arena project and former Bucks owner Herb Kohl has pledged another $100 million. A new arena is projected to cost in the neighborhood of $400 million. He also reiterated the sense of urgency around building an arena to meet an NBA deadline of the 2017-2018 season for the Bucks to produce a home venue that meets the league’s current standards. The Bucks play in the 26-year-old BMO Harris Bradley Center in downtown Milwaukee.

“The problem we have is in our agreement with the NBA if an arena is not built, the NBA has the right to take the team back,” Lasry said. “I think we’ve got three or four years to do that. So we’re under huge pressure to do it."
So this means about $200 million is needed in some kind of fashioned to build the arena. Some of this can be done through naming rights (as was done with Miller Brewing Company with the Brewers' stadium), but there's still a good $100 million or more that'll have to be put in by the public.

2. And Gov Walker did say something about a possible source of those funds last week. The Milwaukee Business Journal got the Governor on the record mentioning that his administration is going to look into what is often called a "jock tax."
Walker told me he likes the concept of calculating a concrete figure for state and local tax revenue from player salaries — Bucks players and visiting team players pay income tax for games here — as well as sales tax on concessions, merchandise and tickets.

“What’s the actual amount of revenue we get particularly from income tax that are prorated for the visiting teams as well as the Bucks?” Walker said. “...Beginning with that at least as a premise, it justifies saying if we don’t do anything, ‘This is the dollar amount that we’d lose.’ So let’s try and look at are there any solutions?”

Walker said he does not want to include economic impact estimates or multiplier calculations on the impact of Bucks games on, for example, restaurants and bars near the BMO Harris Bradley Center.
The Metro Milwaukee Association of Commerce (aka the Journal-Sentinel's REAL bosses) also seems on board with a jock tax idea, and estimates it could raise $8 to $10 million a year, which would mean the $100 million in public funding could be paid off in something like 10-15 years.

From a policy standpoint, there are a few questions that should be cleared up. First, how much should the jock tax be, and what's the limit on it (especially for Bucks players, who would be forced to pay it a lot more if there's no limit)? I'll quote ESPN's Zach Lowe again, who tells a great story about how Memphis and Tennessee's jock taxes forced fringe players like the Grizzlies' Chris Johnson to play for practically nothing.
But the Tennessee tax is strange, according to Ron Klempner, the interim head of the NBA players’ union, and several other tax experts who have addressed the issue. Any NBA player who is on a team’s roster during any game in Memphis has to pay a flat tax bill of $2,500 for that game. (The same goes for NHL players who pop into Nashville to face the Predators.) The tax applies to a maximum of three games, so that no player pays more than $7,500 per calendar year, Klempner says. The flat rates apply to each player, regardless of his individual income level, and they also apply to Memphis players; Marc Gasol, Zach Randolph, and Tony Wroten all wrote $7,500 checks to the state of Tennessee for last season.

Except the money doesn’t go to the state — another of Tennessee’s jock tax quirks. It goes to the operators of the Grizzlies’ arena, who happen to also own the franchise, Klempner says. The state doesn’t see a dime, at least not directly. The theory is that arena operators will use the extra cash to spruce things up, draw more celebrated acts, and spend in other ways that will ultimately bring more visitors and money to the Memphis area...

One last quirk: The jock tax applies only to certain jocks — NHL and NBA players. Players in the NFL are exempt. So in the end, Johnson earned about $54,000 from those two 10-day deals (eight games played) and had to start his tax prep with a fat $7,500 check to the ownership group that waived him. “I didn’t know much about that tax,” Johnson said Thursday in Las Vegas, where he is playing for the D-League’s Select team at NBA Summer League. “But when I got my check, I noticed there was a lot of money taken out for a 10-day. I mean, I was a little … $2,500 is a lot of money.”
It must be noted that Tennessee just dumped their locally-based jock tax for the NHL's Predators and NBA's Grizzlies after complaints from the players' associations of both league. But it seems that the Memphis and Nashville situations would be similar to Milwaukee's in that the extra jock tax would be used locally and for arena-related improvements, so the precedent is there.

My second question on the jock tax is- do you limit it only to the Bucks, or would you levy it on all users of the new facility, including the Admirals, Marquette coaches and personnel, musical artists giving concerts, and the various other events it might hold?

Third, how do you make sure this tax is segregated from other taxes and go solely to this arena, and not be a target to be stolen to fill in budget holes or other needs?And on the flip side, is the "jock tax" for the arena ONLY, or the arena and a nearby development, or does it go to the City and/or County? And how do you guarantee the funds go to the arena and not somewhere else?

And lastly, there's an obvious question as to whether you're discriminating against one group of workers (NBA players and other entertainers) compared to numerous other types of business that may have people making a portion of their income on visits to Milwaukee and other places in Wisconsin. Is this a cue to start cracking down on a number of other professions that may be dodging Wisconsin taxes by failing to report money they made here? That might not be an answer a governor who gets tons of out-of-state donations from businessmen would want to explain.

3. As for other jock taxes themselves? They're legal and relatively common. As Walker alludes to, Wisconsin does a version of this when visiting players come to play the Brewers, Packers or Bucks, and it's often reflected on a player's overall tax return as "income gained in a different state." Jonathan Nehring at wrote an article last year that used Packer QB Aaron Rodgers as an example of how players get hit with these "jock taxes " mentioning that Number 12 could have filed at least 9 state income taxes in a typical year, based on regular season play (Wisconsin and 8 road games in other states). Then Rodgers could write off those state taxes paid to other states when he files his Wisconsin tax return (for example, if Rodgers pays $50,000 in "jock taxes" to those other states, he takes off $50,000 out of the taxes he's owed to the state of Wisconsin for the whole year). NBA and MLB players have to file many more of these state returns, given that they're traveling to more cities and states throughout their respective seasons.

There are certainly issues that need to be cleaned up associated with "jock taxes" that are already in effect. NFL players Jeff Saturday and Hunter Hillenmeyer sued the City of Cleveland last November for making them pay a similar local tax, claiming that the tax was unfairly levied on them. Saturday said he was injured in the Colts' 2008 game vs the Browns, didn't make the trip, and should not have been subjected to it (the Cleveland tax commissioner disagreed). Hillenmeyer's complaint is that the City of Cleveland based its tax on 1/20th of his Bears' salary in the years he played in Cleveland (4 pre-season games + 16 regular season), and should have instead charged him based on "duty days", which is related to how many days a player works (which includes practice, off-season workouts, and related non-game days).

Hillenmeyer is also arguing that items such as roster and signing bonuses shouldn't be subjected to the jock tax, as those are given regardless of whether he is still on the roster at the time the Bears would have played Cleveland. This is related to a question of "home residence" for players, which I assume is where off-the-field income like endorsements is accounted for. This leads to an interesting article that Nehring wrote last week asking if LeBron James's home state was really Ohio (where he grew up and still owns a house) or if it's in Florida (which has no state income tax, and where LeBron lists as "home"). As of now, the Ohio Supreme Court has sent the Saturday/Hillenmeyer case to mediation before hearing it, but it could be worth watching, partly out of curiosity (yes, I'm a geek about these kinds of things), but also to see if there are further rulings given on the legality and form of future "jock taxes".

There's a shockingly large amount of material you can find online discussing jock taxes, and I recommend this Baseball Prospectus article that goes into how that league deals with the situation for their players. But as a funding mechanism for the Bucks' arena? Show me the bill, show me who exactly is being taxes, show me how much it'll raise, and how the money will be set aside, and I'll see if it's worthwhile. I'd rather see a new arena tied into a larger development, like a large TIF district or something else that'll be geared toward the community as a whole instead of specifically targeted to one or two facilities. I don't like the Wisconsin Center District setup for the same reason- give that sales tax to the city or county and allow the overall area to benefit.

But I'm also not going to actively say NO until I see how all the pieces fit together. And we probably won't see the public financing piece of this puzzle for several months, so stay tuned.

1 comment:

  1. This does seem to fail the 14th amendment test. Why does AP have to pay taxes in WI while Lady Gaga doesn't? It is widely known that both of them worked here.