Taxing Pistons, entertainers may boost city $4M a year
The lucrative annual payroll of the Detroit Pistons, along with an expected 100 concerts and other events a year, coming to Little Caesars Arena has Detroit officials preparing for a steady stream of new income-tax revenues.
Using the city’s little-known “jock tax,” NBA players and staff — for the home and visiting teams — would be taxed for each day of working in the city. Under the current formula, a player making $20 million a year could pay $2,400 for playing one game and taking one travel day in Detroit, based on an estimate used by a tax attorney who represents professional athletes.
“Equally important, there all these gazillionaire entertainers that come to town, a portion of their earnings will be taxed,” F. Thomas Lewand, the city’s group executive for jobs and economic growth, told a Detroit City Council committee earlier this year. “We now have ... a very effective method of tracking all these things because we have a deputy treasurer dedicated to making sure it happens.”
Mega entertainers such as Kid Rock, Paul McCartney and Katy Perry have already booked appearances at the 20,000-seat Little Caesars Arena, which opens in September. The new Detroit venue is expected to become the top concert venue in Metro Detroit, replacing the Palace at Auburn Hills, which was drawing about 70-75 concerts a year.
Taxing the Pistons and musicians could add up to about a $4 million annual boost, or about a 1.5 percent increase to the city’s annual income tax revenue, according to an early estimate done by the Pistons for the city. Income taxes — the money collected from worker’s paychecks — are the city’s government’s largest source of funds for its annual budget. The funds help pay for services such as police, fire department and fixing potholes on the road.
Detroit charges an 1.2 percent non-resident tax on wages earned while working in the city by people who live outside its borders. And few, if any, of the Pistons players and staff live in Detroit, according to team officials.
The city has collected a jock tax for years, primarily from the other pro sports teams that play their home games in Detroit. The jock tax is a formula based on the non-resident income tax rate, the number of days worked in the city and the length of the season, which varies widely among sports leagues.
Detroit is updating its “jock tax” to apply it to the Pistons, who left the city 35 years ago, and their NBA adversaries.
Christa McLellan, Detroit’s deputy chief financial officer and treasurer, in an email, said: The “jock tax” reaches beyond the athletes and affects the team’s coaches, trainers, support staff and media. “Everyone who is getting paid for working” in Detroit, she said.
Jock tax is common
Here’s an example how Detroit’s current jock tax could be applied. Andre Drummond, the highest-paid Piston, was downtown recently to unveil the NBA franchise’s new logo. It was a celebratory event highlighting the return to the city after 35 years in the suburbs.
The logo unveiling was an official team event, which means Drummond and any other players and team staff who attended would have fallen under the jock tax guidelines. Drummond will earn a $23.8 million salary in the 2017-18 season. For the one-day logo unveiling, he could pay an estimated $1,400 in the city’s jock tax, based on the formula used by other cities with jock taxes. If Drummond took one day to travel to get to Detroit, the Pistons center could be taxed another $1,400.
Under the current tax plan, Drummond would pay an estimated $1,400 jock tax for each of the 41 home games at the arena, the four pre-season games, each team practice held in the city and other official events.
Jock taxes are common in cities and states that have pro sports teams. In Detroit, the tax currently applies to the Tigers, Red Wings and Lions. The tax — officially called “Taxation of Non-Resident Athletes of Visiting Athletic Teams” — will be updated when the Pistons’ move to Detroit is finalized, which is expected to happen by the end of summer. The city will have to determine the number of “duty days” — the days worked in Detroit — for an NBA team.
As an entertainment outlet, the arena is expected to annually draw the 75 concerts, performances and more, particularly shows that would have gone to The Palace of Auburn Hills in years past, according to city officials and representatives for the two venues.
That creates another revenue stream as the entertainers will be subject to the city’s non-resident income tax rate. The potential amount they are charged is based on ticket sales, but many take legal accounting steps that lower the income that gets taxed, several tax attorneys said.
“Most entertainers have set up corporations, have expenses and other items they use to reduce the amount they have to pay in city taxes,” said Joseph Falcone, a tax attorney based in Southfield. “It’s hard to estimate how much they may pay.”
‘Quirky but fair’
Officials said the city’s promise to be vigilant with pro athletes and touring musicians will help make up for the tax revenue the city agreed to give up to have Little Caesars Arena built. The city-owned venue, which cost $862.9 million to build, is being paid for by a mix of private dollars by the owners of the Detroit Red Wings and public money. The Red Wings hockey team will also have its home games as the new arena. About 62 percent or nearly $539 million of the project is from private financing and the rest — $324 million overall — is government financed.
Under the deal, an entity linked to the Red Wings owners, Olympia Development of Michigan, keeps the revenue from gate receipts, concessions and parking, and naming rights.
The Pistons should be a lucrative addition to city coffers, said several tax experts who represent pro athletes. Sean Packard, tax director of the sports agency Octagon Financial Services in McLean, Virginia, said Detroit’s jock tax is “quirky but fair.” It may be the only city that counts travel days as taxable income, but it doesn’t include signing bonuses, which is uncommon, he said.
“It is a well thought out, detailed piece of legislation,” Packard said.
The Pistons may generate the most city income tax revenue among Detroit’s pro sports teams, said Jonathan Nehring, a New York tax attorney, citing the size of the payrolls, the length of the season and the fact that the Pistons are planning to build and use the team’s practice facilities in Detroit. Nehring is founder of the blog Taxaball, which follows tax issues in sports and entertainment.
The current average salary of an NBA player is higher than other leagues, he noted. The payroll for the Pistons players next season is $107.9 million, according to various sports websites. The average salary of an NBA player was $6.2 million for the 2016-17 season, according to Forbes magazine. Each NBA team can have a maximum of 15 players on its roster, 13 of which can be active each game, according to the league. The average annual salary for Major League Baseball players is $4.4 million, or $1.8 million less than that of the NBA.
The other key reason is the Pistons will practice, both in preseason and during the season, in Detroit at a facility planned to be built in New Center. That adds up to more taxable days for the basketball team compared to the other leagues, Nehring said. The Tigers have their spring training in Florida, the Lions have their preseason and training facility in Allen Park.
Pistons staff could avoid the jock tax altogether by living in the city. Sports agent Packard advises against that. That’s because city residents pay a higher income tax — 2.4 percent — than the non-resident’s 1.2 percent rate.
“You want to reduce the amount of days you are exposed to that higher tax rate,” Packard said.
“It wouldn’t be beneficial to live in Detroit. I would advise to live somewhere full time with a lower tax rate.”
Center, Detroit Pistons
Salary: $23,775,506 (2017-18 season)
Jock tax: $1,426.53 per game
The Pistons have 41 home games, plus four preseason games at home. Pistons players and coaches also get taxed for each practice and other mandatory team activities held in the city.
Forward, Cleveland Cavaliers
Salary: $30,963,450 (2017-18 season)
Jock tax: $1,857 per game
LeBron James and the Cleveland Cavaliers will play in Detroit twice each season.