Wednesday, May 20, 2009

Should the "jock tax" apply to the President?

Kelly at TaxGirl discusses an interesting question raised by one of her readers:

Does the President pay income taxes to every state he visits on official business? This question occurred to me because of the pending Mobile Workforce legislation. Also, is withholding taken out of his paycheck for all of those states?

Kelly replied:

[T]he rule in most states is that you must report and pay taxes associated with either residency or sourced income. Clearly, if the President (or any other politician) is just visiting a state, he (or she) would not meet the residency requirements. And while the President is arguably working when he visits other states, he’s not receiving income sourced from those states - he’s paid by the federal government. If, however, the President stopped in and did a shift at a local McDonald’s for pay, then he would be subject to tax in the state where the McDonald’s is located.

This discussion raises interesting issues.

As I understand it, the so-called "jock tax" requires all traveling employees of professional sports teams (players, coaches, trainers, equipment managers, etc.) to file non-resident tax returns in every state where they play games.

To take a specific example: consider a trainer employed by the Philadelphia Phillies organization who lives in NJ and who travels all over the country to away games with the team. Let's call him "Joe"--as in "Joe the Trainer." By the logic Kelly applied to the President, Joe should only be liable to file a resident return in NJ and a non-resident return in PA.

But my understanding of the jock tax is that in fact, Joe is required to file non-resident tax returns in every state where he travels with the team and pay non-resident taxes on a prorated share of his earnings. Of course, he should get a credit against his resident income tax for most (possibly even all) of what he pays in non-resident taxes, but it's still a big hassle and a lot of paperwork for Joe.

Now, the "jock tax" is actually something of a misnomer, because nothing in the relevant law specifically targets professional sports teams. It's just that they are highly visible targets for enforcement of the non-resident tax laws. Celebrity entertainers are also highly visible targets, as Al Franken can testify.

Politicians, especially the President, are also highly visible targets. If the President feels that the most effective way to carry out his job to improve the health of the economy includes traveling to California to speak to the American public from Jay Leno's studio, how exactly is that different from a trainer for the Philadelphia Phillies who travels to California to help keep the team healthy? The "source" of the trainer's income is the Phillies organization, and that source remains the same whether he travels with the team or whether he stays back in Philadelphia to count the ace bandages, order supplies, etc.

In the case of the President, one could argue that he is the Commander in Chief, and there are special rules that exempt members of the Armed Forces stationed outside their home state from the requirement to pay non-resident taxes to that state.

But what about other politicians?

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