Revenue Administrative Bulletin 1988-48

Approved: September 27, 1988

INCOME TAX – TAXABILITY OF PERSONAL SERVICE INCOME RECEIVED BY A
NON-RESIDENT PROFESSIONAL ATHLETE 

RAB-88-48. This Bulletin describes the Michigan income tax treatment if amounts paid to a non-resident professional athlete who performs personal services in Michigan for any professional team including, but not limited to, football, baseball, basketball, or hockey.

Taxation of Employee Compensation

A professional athlete is taxed on compensation earned for personal services performed in this State to the same extents as other individuals who perform personal services in Michigan. The Michigan Income Tax Act, MCL 206.110, provides in part:

1. In the case of a resident individual, … all taxable income from any source whatsoever, except that attributable to another state under section 111 to 115 and subject to the credit provisions of section 255, is allocated to this state.
2. In the case of a non-resident, …all taxable income is allocated to this state to the extent it is earned, received or acquired:
   1. For the rendition of personal services performed in this state.
   2. …subject to the credit provisions of section 256.

Michigan’s Income Tax Act, MCL 206.256(1), (2), provides that a non-resident is allowed a credit on the Michigan income tax return for tax paid to his or her state of residence on income that is also subject to tax under the Michigan Income Tax Act if the laws of the state of residence contain a reciprocal provision which allows a credit to a resident of this State under similar circumstances. Currently, New Mexico and West Virginia have similar provisions.

Michigan’s Income Tax Act, MCL 206.256(3), provides that a non-resident will be exempt from any income tax on the wages and salaries earned for work done in this State if a reciprocal agreement exists with the non-resident’s state of residence. (See Revenue Administrative Bulletin 1988-17 for a list of the states that have entered into reciprocal agreements with Michigan.)

Personal Service Income Defined

Income received by a professional athlete for the rendition of personal services may include the regular playing season’s salaries and wages, guaranteed payments, bonuses, strike benefits, deferred compensation, severance pay, termination pay and any other form of compensation paid to a player. This compensation may be based upon past, present or future rendition of personal services, whether or not the actual services are performed.

A bonus paid for signing a contract or for reporting to a team is not pro-rated by the allocation formulas described below. The bonus shall be allocated to the player’s state of residency. However, a bonus paid to play in a championship, playoff, or “bowl” game is allocated to Michigan based upon the allocation formulas described below.

General Allocation Formula

A professional athlete who contracts to perform personal services for a team will usually perform the personal services in more than one state. A player’s employment contract will generally specify that personal services include actual playing days. Depending on the type of athletic event, the player’s attendance at training camps, exhibition games, travel days, and practice days may be classified as personal services.

The following methods of allocation shall be used to determine the amount of compensation allocable to this State when the compensation is paid to a non-resident who performs personal services for a professional athletic team competing in Michigan.

Football

The allocation of personal service income received by a non-resident professional football player for games played in Michigan shall be made on the basis of “duty days” spent in Michigan. “Duty Days” include the sum of days at training camp, practice days, exhibition games, season games, playoff games, bowl games, and travel days during an entire playing season.

“Duty days” for an unsigned player starting later than the commencement of the playing season, begin on the day the player reports to the team. “Try-out” days or “pre-season cut” days, a player must serve in order to obtain a contract, are not included in “duty days”.

Allocation Formula

To arrive at the fraction of “duty days” spent in Michigan to total “duty days” spent in the playing season, the numerator shall be the sum of the “duty days” spent in Michigan and the denominator shall be the sum of all “duty days” in the playing season.

Taxation of Earnings

The fraction determined above shall be applied to the total personal service income received within a taxable year and allocated to Michigan.

Baseball, Basketball and Hockey

A player’s salary covers the regular playing season, unless the player started later than the commencement of the team’s playing season.

Allocation Formula

The allocation of personal service income paid to a non-resident professional baseball, basketball or hockey player for games played in Michigan shall be made on the basis of games played in Michigan to the total games played in the league season, including post season games. Exhibition and pre-season games played either within or outside of Michigan and the time spent in training camps do not enter into the computation of the total games played, as no additional compensation is received for these services.

Taxation of Earnings

The fraction determined above shall be applied to the total personal service income received within a taxable year and allocated to Michigan.

A player not completing an entire playing season because of being traded to another team, contract termination, or the player was brought-up from a farm league shall compute his or her allocable share of personal service income in the same manner as described above.

Non-Resident Player’s Required to Pay Estimated Income Tax

Michigan’s Income Tax Act, MCL 206.301, requires every individual (resident and non-resident) expecting his or her annual Michigan tax liability to exceed $500.00, after reducing the annual tax by the amount of tax withheld and the credits provided under the Michigan Income Tax Act, to pay installments of estimated tax. These payments must be made on or before April 15, June 15, and September 15 of the individual’s tax year and January 15 of the following year. The installment shall be equal to one fourth (1/4) of the individual’s estimated tax after deducting withholding and credits.

A non-resident professional athlete whose employer is located in Michigan shall have Michigan income tax withheld from his or her compensation, unless the employer is not required to withhold Michigan income tax because of a reciprocal agreement between Michigan and another state.

A non-resident professional athlete whose employer is located in a non-reciprocal state may enter into a voluntary agreement with his or her employer to have Michigan income tax withheld and remitted to this State.