Of NBA players and their tax burden

After having written about the amazing tax burden of NBA players recently, I received the following informative note from a CPA about the real situation, suggesting it's not quite as bad as it may first have seemed...

I have trouble feeling sorry for professional ball players and their tax situation. It's not quite as bad as you may think.

There is no double tax. The players (employees) are taxed for the time doing their job in a particular state. That's pretty much the rule for everyone that receives earned income from an employer. Say you are an employee for IBM and you're assigned to work in two different states. You would be taxed on your earnings for each state. If those assignments are temporary, generally the non-resident state will not require you to pay tax and all income ends up being taxed in your home state.

Players will receive a credit on the home state tax return if and when they pay taxes to another state. So generally, the tax paid to other states offsets the tax players would have to pay their home state. I say generally, because some states like Texas & Florida don't have an income tax.

Mark Cuban's employees don't pay any state income taxes when they play at home if they claim Texas as their resident state. When they're on the road they will pay taxes to the state they're working in. So they have to file a few more tax returns: big deal. After all they get paid extraordinary amounts to play a game and for that trouble they end up paying the same taxes we all have to pay.

These types of rules generally apply to income earned out of the country. The US has tax treaties that allow credit for taxes paid to other countries. Those credits can offset US taxes.

As to your situation, although you may be liable for one state's taxes, you would receive the same offset as the players would. However, as a practical matter, it is very difficult for any state to actually track where or when you receive your income. This is especially true if you're a non-employee and don't receive wages from an employer. A word of caution: if you happen to spend a lot of time working in a specific non-resident state you should probably report that income and pay taxes to that state. Your tax advisor should be able to give you a more detailed advice.

Interesting information, thanks for sending it in!