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Show Me the Money 

The "jock tax" is controversial and complex, and the public hasn't been paying attention. But is that any reason for the state to pass it up?

The life of a pro ballplayer certainly has its advantages: endorsement freebies from the "Just Do It" crowd, eager groupies, a superstar lifestyle. For the lucky few who can string together snappy one-liners, there's also the promise of a career in broadcasting.

These days, there's another perk: an unofficial tax-exempt status in Louisiana.

Four years ago, the Legislature directed the state Department of Revenue to begin collecting income taxes on visiting and nonresident players. But the order to collect the so-called "jock tax" was more easily passed than implemented. Officials contend the challenge has been daunting at best, mired by complex rules and unexpected tweaks. In fact, the current status of the tax only recently came to light due to a routine legislative committee hearing on an unrelated matter, during which tax officials admitted the initiative was just beginning to gain momentum.

Now, state officials promise to launch an ambitious program to bring the money home. Lawmakers are grumbling with displeasure over the delay, but they have no choice but to wait and watch. After all, the 2001 legislation they passed to create the taxing mechanism provided no concrete timeline or performance evaluation.

Good-government groups say the situation has yet to cause a real uproar among taxpayers because the monies to be collected are not intended for the state. Rather, the taxes would directly benefit the New Orleans Saints, Hornets and Zephyrs, as well as a few other entities. State law requires any such taxes collected to be channeled into the Sports Facility Assistance Fund, which is largely used by the teams for onsite upgrades.

Estimates of exactly how much the state has failed to collect vary from one source to another, but nearly everyone involved in the process say it is significant. Pro teams are so eager to lay hands on the money that Earl Millet, the New Orleans regional tax director, says they have "rolled out the red carpet" to get negotiations moving. As to what has been collected thus far, if anything at all, Millet is staying mum for now.

Officials are unsure when the collection program will be implemented, but most point to a launch in the near future. Millet says that all teams have been contacted, games have been tracked and a special enforcement unit is nearly finished with its final report.

Management argues that the overlooked income will only bolster their operations and may even dissuade teams from coming to the trough for state assistance in the future. But the fact that the collections law is just now gaining steam -- even though it was applicable in 2001 --Êpuzzles some insiders.

"The state ought to collect every tax dollar it is owed if they haven't," says Jim Brandt, president of the nonprofit Public Affairs Research Council (PAR). "And if they haven't been aggressive about it, they should."

Across the country, the "jock tax" has emerged over the past 14 years as a way for local and state governments to tap into multi-million dollar athletic contracts. According to information released by the national nonprofit research group The Tax Foundation, the nonresident athletic tax began when the Chicago Bulls bested the Los Angeles Lakers in the 1991 NBA Finals. Seeing dollar signs, the host state of California decided to go after a chunk of Michael Jordan's salary because he was essentially working there.

Illinois followed with a similar bill in 1992, dubbed "Michael Jordan's Revenge" by lawmakers. Over subsequent years, the system has grown more complex. In most cases, pro players, and those who work with their teams, are now liable for taxes in the state where they live, where their team resides, and in other states where their teams play.

Although there is no nationwide standard, in nearly all cases, including Louisiana, the jock tax on visiting players is calculated by using the number of days they play in another state prorated against their annual income. The vast differences in how some state deals with the situation, however, has prompted The Tax Foundation to call for the abolishment of the tax as well as for national reform measures.

Whether intended or not, the New Orleans Zephyrs has become the most recent poster child for Louisiana's uncollected taxes. The topic came up earlier this month, when team management approached the Legislature about an unrelated tax exemption in Jefferson Parish.

Accompanied by other senior personnel, Ron Maestri, the Zephyrs' chief operating officer, had built up a convincing argument for an exemption. Unlike its big-brother teams in the city, he told lawmakers, the Zephyrs actually pay rent on a state-owned park as well as taxes on concessions and tickets. Plus, the team is not dependent on state funding, there's a Triple-A World Series championship trophy in its offices, and the franchise stakes claim to impressive attendance records.

But there is one concern the Triple-A team shares with the pros. "The state has not collected the professional tax over the last five years on professional players from opposing teams that have come in and played at the Zephyrs' stadium," Maestri says. "That tax has not been collected."

Walter Leger, the team's vice president, says he hopes that the taxes will be collected this year so his team can use the funds for immediate facility upgrades. When you play about 72 home games a year, that visiting tax can really pile up, he says. Kevin Hayes, a lobbyist for the ball club, says tax officials have assured him that the collection program would initially reach back to the 2000 income reports -- and eventually would go back even further.

Many lawmakers wanted to know why the taxes weren't presently being pursued for the Zephyrs, especially since a bill was passed four years ago requiring the state to do so.

Cynthia Bridges, the secretary of the Department of Revenue, says rules and regulations have been established to collect the taxes, but there's no real rush to implement them. "The Zephyrs, along with hockey players, are not earning the substantial salaries that the football and basketball players earn," she says. "Consequently, the contribution to the fund would not be as large."

Rep. Cedric Richmond, a New Orleans Democrat, echoes Bridges' comments and questions the feasibility of such a program. "Triple-A ballplayers might not even be worth the trouble going back to 2000," he says. "We might incur more expenses in trying to recoup the money than the actual money they make. They don't even get a substantial contract until they get promoted above."

But Maestri says that a number of Zephyrs players are contracted with Major League teams -- and are pulling down big salaries. Formerly a farm team for the Houston Astros, this past year the Zephyrs became a farm team for the Washington Nationals. Major League teams will often send players down to the Triple-A system for a variety of reasons, including to gain more experience or to rehabilitate from an injury. To the best of his knowledge, the Major League teams are also withholding taxes, Maestri says.

That fact points to yet another wrinkle in the collection program that was not considered under the 2001 legislation. The Zephyrs club has baseball players still contracted with their parent teams. Although management claims those teams are withholding taxes and waiting, Millet says he needs to explore the topic more. Legislation or a simple department rule may need to be crafted to address the scenario, he adds.

How much money would the jazzed-up collections bring to the Sports Facility Assistance Fund? Due to "confidentiality," Millet did not provide any exact figures. "In the next year there will be a tremendous increase in what you see now," he says. "I just can't reveal how much it would be."

Published reports indicate that the Zephyrs could receive anywhere from $30,000 to $60,000 from taxes collected on visiting players, but that range might not include nonresident members of the home team. Likewise, the Saints could be eligible for up to $750,000 a year from out-of-state team members and about $10 million annually from visiting athletes, according to the original legislation authored by then-Rep. Ed Murray, a New Orleans Democrat. The Hornets had not yet relocated to Louisiana when the bill was passed four years ago and no financial data was included in the accompanying fiscal note.

In addition to football, basketball and baseball, the Sports Facility Assistance Fund is also eligible to receive tax monies from professional golfers and hockey players. The allocations are directed to the owners of the facility where the events are staged; state law requires the sum be used for "renovations, additions, operations and maintenance of those facilities." In the case of taxes collected on pro golfers, those proceeds are used to sponsor the Compaq Classic.

There are rules on the books for who pays into the fund, but one category has been largely overlooked: the definition of a "member of a professional athletic team," as outlined in state law, includes active players, those on the disabled list and all others required to travel with the team. The Tax Foundation recently reported that nationwide, coaches, managers and trainers are getting roped into paying the traveling tax as well. Opponents argue that was not the original intention of the laws that now set up in dozens of states and municipalities.

In Louisiana, Millet says that a system is in place for collecting income taxes on the pro players and employees in question -- but he declines to comment further. "In general, we're working on it," he says.

Millet further explains that a discovery unit is preparing the information needed to proceed at full tilt, but that might not get fully underway until later this year or even 2006. "We're just getting a lockdown on the most recent income-tax season," he says. "So next thing we're going to do is review what was filed for 2003."

That information must be checked against team rosters, he says, as well as the games played. "It's a big undertaking," he says.

If what has transpired in other states is any indication, the revenue department might also be preparing for legal challenges. In 1997, then-Baltimore Oriole Brady Anderson sued the state of Maryland because tax officials there claimed he owed both resident and nonresident taxes because he had an apartment near the ballpark. Anderson paid the nonresident taxes, but the state still pursued more than $485,000 in back resident taxes. The courts ruled in Anderson's favor and found him to be not a permanent resident. It set a precedent, but similar challenges could follow even in Louisiana.

In another case in 2003, Chicago Cubs star Sammy Sosa sued the state of Illinois because it denied the tax credits he paid for income taxes paid elsewhere. In 1998, Sosa paid $65,000 in taxes in three other states where he had played, but Illinois still charged him about $38,000 on the same income. The slugger lost the case, with Illinois tax officials claiming he should have sued the other states where he paid taxes.

The Louisiana Department of Revenue is likely sifting through cases such as these. But if the complexity of the program justifies why it has taken so long to come online, it doesn't explain why it took an unrelated committee hearing to get an update on its progress, says Barry Erwin, president of the Baton Rouge-based good-government group Council for A Better Louisiana.

In fact, the lack of information provided in recent years might be the only reason the public hasn't complained about the lack of movement, Erwin says. People were paying attention four years ago when it was in the headlines, but today it's a different story. If lawmakers considered the collections an important issue, then they should have found a way to keep tabs on it, Erwin adds.

"In many ways, this just might be one of those things that has fallen between the cracks," Erwin says. "We've done a great job of bringing some performance evaluations into the budgeting process so that agencies have to come back every year and justify the money they're getting. But when these other kinds of programs pass, you don't see those types of mechanisms in place and that's unfortunate. When we pass new mechanisms there should be performance-based indicators. You should have to come back and revisit it. If the Legislature doesn't put a focus on these agencies, nobody will."

click to enlarge Zephyrs chief operating officer Ron Maestri says that the - "jock tax" would include a number of minor league - players contracted with Major League teams  and who - are pulling down big salaries. "That tax has not been - collected," he says. - DONN YOUNG
  • Donn Young
  • Zephyrs chief operating officer Ron Maestri says that the "jock tax" would include a number of minor league players contracted with Major League teams and who are pulling down big salaries. "That tax has not been collected," he says.
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