By Sharon Frankenberg,
Attorney at Law

I thought I was pretty familiar with Tennessee’s Professional Privilege Tax, having paid it every year since its inception in 1992.  When first enacted, it included a laundry list of occupations and professions whose practitioners were obligated to file a return and pay the required flat tax to the state department of revenue.  Doctors, lawyers, architects, accountants, dentists, agents, engineers, brokers, investment advisors and others had to pay up or face losing their state licenses.  Over the years the list of covered occupations was trimmed and the tax was doubled from $200 to $400.  The returns must now also be filed and paid electronically by June 1st of every year.  My cost this year was $409.96 for the privilege of paying my privilege tax with a credit card.

While online dutifully paying my tax, I noticed that there was mention of the tax applying to “persons employed as players on any franchise of the National Basketball Association or National Hockey League for more than 10 days in the tax period who are on the roster for any NBA or NHL regular season game within the boundaries of the state.”  The law went into effect on July 1, 2009 and applies to both Tennessee based teams (Nashville Predators and Memphis Grizzlies) and their opponents.

Every athlete who is on the club’s active roster and eligible to participate in a game is subject to the tax, regardless of whether they actually play or not.  Interestingly, the tax does not apply to professional football players so the Tennessee Titans are exempt.

More interesting is that this “jock tax” on each player is $2,500 per game, up to a maximum of three games per year.  So an individual player may be taxed up to $7,500 per year under this tax.  That is not much to LeBron James who makes about $19 million per year but not all players do quite as well.

According to the National Basketball Players Association, about 20 percent of NBA players have either lost money or broken even in Memphis.  The NHL has agreed to reimburse hockey players for the money they pay for the tax, which amounts to about $2 million per season.  Before that change to their collective bargaining agreement, more than a third of NHL players had lost money when playing in Nashville.

Unlike the other privilege taxes collected, the money from the jock tax does not go to the state.  It goes to the operators of the arenas in Memphis and Nashville.  In Memphis, that means to the owners of the Grizzlies franchise.  The Tennessee Department of Revenue has been collecting money on behalf of private entities since 2009.  That does not sound very constitutional, does it?  According to an analysis in Volume 23 of the Marquette Sports Law Review, it most likely violates the Commerce Clause because it is not fairly apportioned, is discriminatory and is not fairly related to the services provided by the state of Tennessee.

The remedy?  The state legislature amended the law in April 2014 to abolish the jock tax as to NHL players in 2014 and end the tax on NBA players in 2016.  Governor Haslam signed the bill into law on April 24, 2014.