Ohio Supreme Court Rules in Favor of Nonresident Athletes Against City of Cleveland

By Gregory Speece, CPA, MT; Patrick Walsh, M. Acc.; and Hannah M. Prengler, CPA, Cleveland

Editor: Anthony S. Bakale, CPA, M.Tax.

After more than a decade of debate, the Ohio Supreme Court ruled in favor of professional athletes and their determination of taxable income within the city of Cleveland. In April 2015, the court found Cleveland incorrectly imposed its 2% local income tax on nonresident athletes' exterritorial income in two separate cases. In both cases, the plaintiffs argued against how Cleveland employed a "games played" formula to determine the taxable wages earned within its jurisdiction.

Hillenmeyer v. Cleveland Board of Revenue

The first case involved Hunter Hillenmeyer, a former linebacker for the Chicago Bears, who visited Ohio for two days each year during 2004–2006 to face the Cleveland Browns (Hillenmeyer v. Cleveland Bd. of Rev., No. 2014-0235 (Ohio 4/30/15)). The Central Collection Agency (CCA), which acts as the tax authority for the city of Cleveland, required income tax withholding on members of the visiting team under Cleveland Codified Ordinances Section 191.0501. The dispute arose when Hillenmeyer discovered a large portion of his income was subject to tax by Cleveland under the "games played" formula, despite specifications of his employment under the NFL standard player contract requiring him to perform various services during the pre- and post-season in addition to any games played.

Hillenmeyer challenged Cleveland's games-played formula, arguing that nonresident professional athletes were unjustly excluded from the more common "occasional entrant" grace period offered to employees in other industries. The occasional-entrant rules allowed workers to come into Cleveland for up to 12 days (in 2016, it increases to 20 days under Ohio Rev. Code Section 718.01(C)(17)) and not be subjected to Cleveland income tax withholding.

Under Cleveland's games-played formula, Hillenmeyer's total wages were multiplied by a formula that included the number of games in Cleveland over total games played for the year. In a nonplayoff year, this equated to 5% of his total wages (one game in Cleveland divided by 20 total regular season and preseason games).

This method was contrary to the widely accepted "duty days" allocation imposed on nonresident professional athletes in other states and cities. In fact, Cleveland is the only city to deviate from this method. Under the duty-days method, an athlete's total wages are multiplied by the number of days spent in a city over the total duty days in a calendar year. Duty days include games, practices, training camp, and other team activities. In Hillenmeyer's case, using the duty-days approach would have resulted in only about 1.2% of his wages' being subject to Cleveland tax (slip op. at 8).

The Ohio Supreme Court ruled in favor of Hillenmeyer, agreeing that athletes' wages are earned for more than just the games they play. By using a games-played formula, Cleveland was taxing extraterritorial income that was earned outside of its jurisdiction and therefore failed to afford due process. The court decided the games-played method was unconstitutional (slip op. at 14).

In its decision, the court cited two restrictions on a state's power to tax income under the Due Process Clause of the 14th Amendment to the U.S. Constitution. The first requires "some definite link, some minimum connection, between a state and the person, property or transaction it seeks to tax" (Quill Corp. v. North Dakota, 504 U.S. 298, 306 (1992)). The second restriction was that "the income attributed to the State for tax purposes must be rationally related to 'values connected within the taxing State' " (Moorman Mfg. Co., 437 U.S. 267, 272–273 (1978), quoting Norfolk & W. Ry. Co. v. Missouri State Tax Comm'n, 390 U.S. 317 (1968)).

Hillenmeyer was awarded a Cleveland tax refund based on a duty-days allocation for all three years. Additionally, the court upheld that Cleveland retains the power to tax nonresident professional athletes without allowing them the benefit of the 12-day grace period.

Saturday v. Cleveland Board of Revenue

In the second case, Jeff Saturday (former center for the Indianapolis Colts) claimed that Cleveland unfairly taxed him on wages earned in 2008 (Saturday v. Cleveland Bd. of Rev., No. 2014-0292 (Ohio 4/30/15)). The Colts played one game against the Browns that year, but because of an injury, Saturday did not accompany the team to Cleveland. Nevertheless, the Colts allocated wages and remitted city income tax to the CCA based on the games-played allocation.

Saturday's original refund claim was denied. The CCA argued that under the games-played method, tax should be withheld on "the entire amount of compensation for games that occur in" Cleveland, including compensation for games the athlete was "excused from playing because of injury or illness" as detailed in CCA Regulation 8:02(E)(6) (slip op. at 4). Saturday contested the CCA's position and eventually appealed for a refund to the Ohio Supreme Court, submitting supporting affidavits from the NFL that paralleled Hillenmeyer.

The court ruled in Saturday's favor, but it focused on the language of the CCA's regulation as opposed to citing Hillenmeyer. Referring to the regulation as "ambiguous," the court concluded Cleveland lacked authority under its City Ordinance and Regulations to impose local income tax on a nonresident professional athlete who was not physically attending the game (slip op. at 9). Further, the court stated the city's interpretation of the regulation as applying to games for which a player was not in attendance was overbroad when the regulations were read in context of the ordinance, which states that the tax applies to nonresidents for "work done or services performed or rendered within the City" (slip op. at 8). The court held that, similar to Hillenmeyer, Saturday was entitled to a full refund of Cleveland income tax plus interest.

These two Ohio Supreme Court cases would seem to end the continuing controversy between professional athletes and Cleveland over the city's method of taxing athletes' income. However, on May 11, Jeremy Pelzer of Northeast Ohio Media Group reported on Cleveland.com (www.cleveland.com) that the city has filed a motion for reconsideration with the Ohio Supreme Court.

The city's motion cited the pending disciplinary action against New England Patriots quarterback Tom Brady for his role in "Deflategate," in which an NFL investigation report concluded that Brady was probably "at least generally aware" that team personnel were deliberately deflating game balls in violation of league rules during New England's 45–7 victory over the Indianapolis Colts in the AFC Championship Game in January. Although the motion was filed before the announcement of Brady's four-game suspension, the motion cited the NFL's policy for suspending players from games and the associated docking of pay for games missed under the suspension. (Brady's appeal of the suspension was heard on June 23, but the NFL Commissioner's office had not released its ruling on the appeal as of this writing.) The motion stated that its tax system is more in line with how players' pay is viewed within the NFL. It is unlikely, however, that the court will reverse its 7–0 decisions in the earlier cases.


Both of these cases create a potential refund opportunity for nonresident athletes previously subjected to Cleveland's games-played formula. Cleveland, however, provides only a three-year statute of limitation for any nonresident athlete seeking a refund of any overpaid Cleveland income tax. Nonetheless, these cases could affect hundreds of athletes as Cleveland has three major sports franchises with venues inside the city limits, as well as minor league hockey and professional arena football teams.


Anthony Bakale is with Cohen & Company Ltd. in Cleveland. For additional information about these items, contact Mr. Bakale at 216-774-1147 or tbakale@cohencpa.com. Unless otherwise noted, contributors are members of or associated with Cohen & Company Ltd.

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