Ohio Supreme Court Ruling Opens Tax Refund Opportunities for Non-Resident Athletes– May 12, 2015 by Greg Speece

On April 30, 2015, the Ohio Supreme Court decided two cases relating to the way Cleveland imposes local income tax on visiting professional athletes. The center of the argument is the “games-played” formula used by Cleveland to determine the amount of wages earned in Cleveland, and therefore subject to the city’s 2% tax rate. The outcomes of these cases create an opportunity for non-resident athletes playing in Cleveland to potentially file for city tax refunds.

In Hillenmeyer v. Cleveland Bd. of Rev., former linebacker for the Chicago Bears, Hunter Hillenmeyer, contested taxes he paid to Cleveland after playing road games against the Cleveland Browns in 2004, 2005 and 2006. Under the games-played formula, Hillenmeyer’s total wages were multiplied by the ratio of games in Cleveland versus total games played for the year. In a non-playoff year, this would equal 5% of his total wages (one game in Cleveland divided by 20 regular season and preseason games).

This method is contrary to the widely accepted “duty-days” allocation, which is imposed on non-resident professional athletes in other states and cities. In fact, Cleveland is the only city to use a different method. Under the duty-days approach, an athlete’s total wages are multiplied by the ratio of days spent in a state or city versus the total duty days in a calendar year. Duty days include games, practices, training camp and other team activities. In Hillenmeyer, the duty-days approach would have resulted in only approximately 1% of his wages being subject to Cleveland tax.

The Ohio Supreme Court ultimately ruled in favor of Hillenmeyer, agreeing that an athlete’s wages are earned for more than just the games they play. By using a games-played formula, the City of Cleveland was taxing income that was earned outside of Cleveland and therefore failed to afford due process, deeming the games-played method unconstitutional. Hillenmeyer was awarded refunds based on a duty-day allocation for all three years.

In a related case, Saturday v. Cleveland Bd. of Rev., Jeff Saturday, former center for the Indianapolis Colts, contested that Cleveland unfairly taxed him on wages earned in 2008. The Colts played one game against the Browns that year; however, Saturday did not accompany the team to Cleveland due to injury. Nevertheless, the Colts allocated wages and remitted tax to Cleveland based on the games-played allocation method. Saturday’s original refund claim was denied, since Cleveland’s games-played method stated that tax should be withheld on “the entire amount of compensation for games that occur in Cleveland” and includes compensation for games the athlete was “excused from playing because of injury or illness.”

As the Hillenmeyer decision determined Cleveland’s games-played method unconstitutional, the court subsequently determined that Saturday’s compensation should also be allocated under a duty-days method. Because Saturday did not travel to or perform any work in Cleveland, it was ruled that none of his wages were earned there, so he was entitled to a full refund of his 2008 Cleveland tax.

Both of these cases create a potential refund opportunity for non-resident athletes previously subjected to Cleveland’s games-played formula. But timely claims must be made, as Cleveland provides only a three-year statute of limitations for any non-resident athlete seeking a refund of overpaid Cleveland income tax.

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