Jock taxes impact nonresident athletes (and others) who perform in out of state venues. Let’s say you’re in the National Hockey League (NHL), playing for the Vegas Golden Knights. You play a game in Pittsburgh. You now owe tax to Pennsylvania and, because Pittsburgh has a nonresident tax on performers, to the city of Pittsburgh.
Pennsylvania law allows a “Second Class City” (yes, Pittsburgh is literally that–but it’s actually defined by Pennsylvania law as a city with a population of more than 250,000 bet less than one million) to impose up to a 3% tax on earnings at sports venues for nonresidents. However, the Pennsylvania Constitution (article VIII, § 1) states, “All taxes shall be uniform, upon the same class of subjects, within the territorial limits of the authority levying the tax.” Pittsburgh residents pay a 1% earned income tax plus a 2% school district tax; nonresidents pay 1% on income plus a 2% “Facility Fee.”
Three NHL players plus the players associations for the NHL, NFL, and major league baseball sued Pittsburgh. They won in the lower courts, but Pittsburgh appealed to the Pennsylvania Supreme Court. Yesterday, the court ruled that the 2% Facility Fee is indeed unconstitutional.
The court noted that they had to determine, “…whether there exists ‘some concrete justification’ for treating the relevant taxpayers as members of distinguishable classes.” If the court couldn’t find that, the tax would be unconstitutional.
And that’s what the court found:
Here, the City does not provide concrete reasons that would justify taxing nonresident athletes and entertainers more than resident athletes and entertainers. Instead, the City once again argues that the facility fee “does not impose an unequal tax burden on nonresidents” because it actually equalizes the tax burdens of resident and nonresident performers. Residents who perform at the stadiums are taxed three percent of what they earn (one percent to the City and two percent to the School District), and now—because of the facility fee—nonresidents also pay a three percent tax. The City maintains that a tax which equalizes the burdens between two groups of taxpayers cannot violate the Uniformity Clause. [citations omitted]
When an argument loses at two lower courts, you might think about finding something else as backup for your cause. Pittsburgh didn’t. The result wasn’t good for the Second-Class City:
Because the two percent Pittsburgh School District tax cannot be used to justify the facility fee in our Uniformity Clause analysis, and because the City of Pittsburgh has not supplied a “concrete justification” for treating resident athletes and entertainers differently from nonresident athletes and entertainers, we agree with the lower courts that the facility fee is unconstitutional. [citation omitted]
Pittsburgh will need to repay a lot of athletes, and this is definitely going to put a strain on the Steel City’s finances. It’s also a reminder that uniformity means just that.