On April 30, 2015, out-of-state professional football players earned victories against the City of Cleveland, Ohio.  In a pair of cases decided by the Ohio Supreme Court, the court first struck the City’s method of allocating a nonresident professional athlete’s compensation as unconstitutional, and later that day ruled that the city tax cannot reach the income of a nonresident athlete who was not present in the Cleveland when the Browns hosted his team.

In Hillenmeyer v. Cleveland Bd. of Review, Slip Opinion No. 2015-Ohio-1623 (Ohio Apr. 30, 2015), Hunter Hillenmeyer, a former linebacker for the Chicago Bears, appealed the denial of his claims for refunds of income taxes paid to Cleveland.  Hillenmeyer argued that he paid too much tax to the city because the city’s method of allocating his compensation overstated his income earned in the city.  Cleveland had applied a “games-played” method to allocate a nonresident professional athlete’s income, meaning that the city’s taxing ratio was the number of games played in Cleveland over the total number of games played during a year.  Under this method, a visiting football player who travels to Cleveland for one game out of a 20 game season (including preseason and regular season games in a non-playoff season) would have 5 percent of his income allocated to and taxable by the city.

Hillenmeyer argued that this method ignored the fact that his compensation, like that of other players in the National Football League (NFL), was based not only on games played, but also on a mandatory mini camp following the NFL draft, preseason training camp (including preseason games, practices and meetings), practices and game preparation during the regular season, and postseason games and practice (if necessary).  None of these other activities occurred in Cleveland.

The court agreed with Hillenmeyer, finding the city’s games-played method overstated Hillenmeyer’s Cleveland income tax liability.  The court ruled the games-played method unconstitutional on due process grounds on the basis that it imposed tax on income earned outside of Cleveland.  The court reasoned that for taxation of a nonresident’s compensation to comport with due process, the tax base—the work performed—must be performed in the taxing jurisdiction.  Additionally, relying on precedent applying the state income tax to a nonresident Cincinnati Reds player, the court also held that a nonresident professional athlete’s total work performed should include not only games played, but all activities for which the athlete was compensated, including preseason training.

Applying these principles, the court adopted Hillenmeyer’s proposed method of allocation—utilized by other jurisdictions—and termed the “duty-days” method, as consistent with due process.  Under the “duty-days” method, income is allocated based on the number of work days spent in a city over the total number of work days.  For Hillenmeyer, this equated to 2 days in Cleveland per game.  Applying this method to the years at issue, the court found that Hillenmeyer was entitled to refunds because less than 1.5 percent of his annual compensation was allocable to Cleveland.

Later the same day, in Saturday v. Cleveland Bd. of Review, Slip Opinion No. 2015-Ohio-1625 (Ohio Apr. 30, 2015), the court held for another nonresident NFL player, retired Indianapolis Colts center Jeffrey Saturday.  Here, the court did not reach the constitutional challenges, finding instead on statutory grounds that the city’s income tax did not reach any of Saturday’s compensation.  During the year at issue, for the Colts’ game at the Browns, Saturday was absent, remaining in Indianapolis to receive treatment for injuries.  Relying on the determination in Hillenmeyer that NFL athletes were paid for more than just game days and the language of the taxing statute, the court held that because Saturday did not perform any work in Cleveland, the city was precluded from taxing any portion of his compensation.

Practice Note

It is unlikely that these cases end the woes for Ohio’s municipal income taxes.  In light of the U.S. Supreme Court ruling last week in Comptroller of the Treasury of Maryland v. Wynne, No. 13-483 (May 18, 2015), some local Ohio taxing jurisdictions must re-examine their failure to give full credit for taxes paid on the same income to other jurisdictions. Click here to see Art Rosen and Mark Yopp’s post analyzing the Wynne decision.