On Sept. 21, 2022, the Court of Common Pleas of Allegheny County, Pennsylvania ruled that the City of Pittsburgh’s (City) Nonresident Sports Facility Usage Fee (Facility Fee) levied on professional athletes violates the Uniformity Clause of the Pennsylvania Constitution.1 The Court ruled that the Facility Fee operates as a tax in substance and that it violates uniformity by imposing higher tax burdens on nonresident professional athletes than similarly situated athletes who are Pittsburgh residents.
Pittsburgh’s Facility Fee was first enacted in 2005.2 The fee is imposed on Pittsburgh nonresident athletes at a rate of 3% of personal income earned while using the City’s sports venues. In contrast, Pittsburgh residents are subject to the City’s 1% earned income tax. Recent City Facility Fee collections have ranged from approximately $5.3 million in 2019 to approximately $3.6 million in 2021 (with the decline due to lower usage of the facilities during the pandemic).
With respect to professional athletes, the portion of personal income subject to the fee differs based on the professional sports league in which the athlete plays. For example, income subject to the fee for National Football League athletes is calculated based on duty days spent in Pittsburgh versus total duty days, which includes preseason, regular season, and post-season games and practices. In contrast, Major League Baseball and National Hockey League (NHL) athletes calculate income subject to the fee based on the number of games played in Pittsburgh in relation to the total number of games played.
In Nov. 2019, several active and retired professional athletes filed a complaint with the Allegheny County Court of Common Pleas either individually or through their respective players’ associations, alleging that the Facility Fee is unconstitutional in violation of state uniformity principles. The athletes argued that the fee is a substantive tax, and that the difference in tax rates between resident and nonresident athletes violates the Uniformity Clause of the Pennsylvania Constitution3 and the Commerce Clause of the U.S. Constitution.
Trial court decision
In its decision, the Court agreed with the athletes that the Facility Fee in fact operates as a tax. Applying Pennsylvania case law, the Court noted that the fee is an assessment on the wages and salaries of athletes, falling more appropriately under state and city definitions of an income tax.4 Second, the Court observed that the funds collected from the fee are directed to the City’s general fund and were categorized as tax revenue in the City’s budget. Additionally, the Court noted the legislative purpose of the fee in reducing the amount of the City’s amusement tax, instead of defraying the costs of government regulatory activities, a distinguishing feature of a license fee. Finally, the Court reasoned that the fee was not subject to any supervision or regulation, and that there was no specific licensing authority to collect the fee and regulate the use of the sports venues in question. Finding that the fee shares “substantial similarities with a tax,” the Court concluded that the Facility Fee “cannot be said to be a fee.”
Having established that the Facility Fee operates as a tax in function, the Court next considered whether the structure of the fee violated state uniformity principles. The City contended that even if the fee was considered a tax, it would still be permissible under the Uniformity Clause because both residents and nonresidents pay the same effective tax rate. Pittsburgh residents are assessed income tax at an aggregate 3% tax rate, with a 2% income tax levied by the City school board and a 1% statutory tax on income levied by the City.
The Court disagreed, noting that revenue from the school tax was directed toward educational funding and was not directly imposed by the City. In the Court’s view, “[d]efendants cannot find uniformity where a separate entity taxes residents for a separate purpose.” Comparing the 1% resident income tax to the 3% nonresident Facility Fee, the Court found “no permissible or rational basis for an unequal application of tax rates across residents and nonresidents, and unequal application of tax rates across the same profession.” For these reasons, the Court concluded that the Facility Fee presented a discriminatory burden on Pittsburgh nonresidents in violation of the Uniformity Clause and entered an injunction barring the City’s enforcement of the fee.
The Court’s invalidation of Pittsburgh’s nonresident athlete fee is the latest decision in a long line of uniformity cases recently considered by Pennsylvania courts, which generally apply a rigid interpretation of the state’s uniformity clause. Most recently, the Pennsylvania Supreme Court severed the state’s entire net loss carryover (NLC) deduction provision as applied to the 2001 tax year and provided taxpayers with a refund of corporate net income tax in General Motors Corporation v. Commonwealth (GM).5 The GM decision agreed with the state high court’s decision reached in Nextel Communications of the Mid-Atlantic v. Commonwealth, which held that the flat dollar cap contained in the NLC statute as it existed in 2007 violated uniformity because certain corporate taxpayers could eliminate their tax burden entirely while similarly situated taxpayers would still have to pay tax.6 With respect to Pennsylvania property taxes, the court ruled that the Uniformity Clause prohibited a school district from selectively appealing the tax assessments of commercial properties while passing over the assessment appeals of residential properties.7
The Court’s decision in National Hockey League Players Association likewise represents the latest case of professional athletes challenging the application of state and local “jock taxes” in non-uniform ways and at dissimilar tax rates for nonresident athletes compared to resident athletes. For example, the Ohio Supreme Court ruled in 2015 that the games-played method for calculating Cleveland’s nonresident tax on professional athletes violated the due process clause of the U.S. Constitution because the calculation of the tax included days where athletes were not present in the city.8 In 2014, Tennessee repealed its $2,500-per-game professional privilege tax imposed on certain professional athletes after the NHL and National Basketball Association players’ associations challenged the tax on the basis that it did not apply to all professional sports played in the state.9
The income tax treatment of sports enterprises and their players is distinctive due to the itinerant nature of the business, and the desire of states and localities to ensure a revenue stream when the big game comes to town, particularly when many of the players are highly compensated (whether or not they actually deliver on the field of play). Assuredly, players have long been cognizant of the disparities in state and local tax burdens that exist when deciding what team to play for, often leading to players choosing Florida or Texas franchises because these states do not impose a personal income tax. While the Pennsylvania personal income tax is one of the lowest in the nation, particularly in comparison to New York or California, local earned income taxes and the Philadelphia Wage Tax make the overall Pennsylvania income tax rate somewhat less attractive. And as described above, the charges (fees or taxes) imposed on nonresident athletes can be significant when aggregated as a whole, even impacting those who establish residence in Florida or Texas. With respect to this controversy, the future of Pittsburgh’s Facility Fee now depends on whether the City decides to appeal the ruling to the Pennsylvania Commonwealth Court, in which case the trial court decision would not be the final disposition of the case. Until that time, the injunction entered by the Court bars the City from enforcing the fee.
1 National Hockey League Players Association et al. v. City of Pittsburgh, No. GD-19-015542, Allegheny County (Pennsylvania) Court of Common Pleas, Sept. 21, 2022.
2 Pittsburgh City Code § 271.01.
3 Pennsylvania’s Uniformity Clause requires that “[a]ll taxes shall be uniform, upon the same class of subjects, within the territorial limits of the authority levying the tax, and shall be levied and collected under the general laws.” Pa. Const. art. VIII, § 1.
4 Citing National Biscuit Company v. City of Philadelphia, 98 A.2d 182 (Pa. 1953).
5 No. 12 MAP 2020, Pennsylvania Supreme Court, Dec. 22, 2021. For further discussion of this case, see GT SALT Alert: Pennsylvania severs net loss carryover provision.
6 171 A.3d 682 (Pa. 2017).
7 Valley Forge Towers Apartments, LP v. Upper Merion School District, 163 A.3d 962 (Pa. 2017).
8 Hillenmeyer v. Cleveland Board of Review, 37 N.E.3d 1248 (Ohio 2015).
9 Tenn. H.B. 1134, Laws 2014.
Matthew D. Melinson
Matthew Melinson is a partner in Grant Thornton's Philadelphia office and the national leader of the SALT practice's indirect tax services. Melinson is responsible for all aspects of multistate tax consulting and planning and compliance related to income tax, franchise tax, sales and use tax, credits and incentives, real estate tax, and personal property tax.
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Jamie Yesnowitz, principal serving as the State and Local Tax (SALT) leader within Grant Thornton's Washington National Tax Office, is a national technical resource for Grant Thornton's SALT practice. He has 22 years of broad-based SALT consulting experience at the national and practice office levels in large public accounting firms.
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